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North Carolina
Comprehensive Annual Financial Report
For the fi scal year ended June 30, 2015
Th e North Carolina Maritime Museum at Southport (top) tells the story of the Cape Fear
region and its people. Th e Museum shares tales of pirates and pillage, blockade running,
riverfront archaeology, and other nautical adventures.
Th e North Carolina Maritime Museum in Beaufort (middle) refl ects coastal life and
interprets lighthouses and lifesaving stations, the seafood industry, motorboats, and more.
Th e Museum is the repository for artifacts from Blackbeard’s wrecked fl agship, Queen
Anne’s Revenge.
Th e Graveyard of the Atlantic Museum in Hatteras (bottom) is named in honor of thousands
of shipwrecks that sank off North Carolina’s coast. Th e Museum preserves and interprets
the maritime heritage and shipwrecks of the North Carolina Outer Banks.
One historic coast. Th ree unique museums.
Photos courtesy of NC Department of Natural and Cultural Resources
NORTH
CAROLINA
COMPREHENSIVE
ANNUAL
FINANCIAL
REPORT
FOR THE FISCAL YEAR
ENDED JUNE 30, 2015
PAT MCCRORY
GOVERNOR
LINDA COMBS
STATE CONTROLLER
Prepared by Statewide Accounting staff
Office of the State Controller
http://www.osc.nc.gov
State of North Carolina
This report was prepared by the
Statewide Accounting staff of the North Carolina Office of the State Controller.
Anne Godwin, CPA
Deputy State Controller
Statewide Accounting
anne.godwin@osc.nc.gov
Elizabeth Colcord, MAFM
Accounting and Financial Reporting
Manager
elizabeth.colcord@osc.nc.gov
Amber Young
Central Compliance
Manager
amber.young@osc.nc.gov
Statewide Accounting staff
Ann Anderson Cathy Johnson Randy Smith, CPA
Joy Darden, MSA Laura Klem Prabhavathi Vijayaraghavan, CPA
Debbie Dryer, CPA Clayton Murphy, CPA Megan Wallace, CPA, MACIS
Martha Hunt, CPA Virginia Sisson
Special appreciation is given to the chief fiscal officers and the dedicated accounting personnel throughout the State.
Their efforts to contribute accurate and timely financial data for their agencies, universities, community colleges, and
institutions made this report possible.
2
State of North Carolina
PATMCCRORY
Governor of North Carolina
REPRESENTATIVE TIMMOORE
Speaker of the House
North Carolina General Assembly
SENATOR PHILIP BERGER
President Pro Tempore
North Carolina General Assembly
LINDA COMBS
State Controller
3
TABLE OF CONTENTS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2015
INTRODUCTORY SECTION Page
Letter of Transmittal.................................................................................................................................................................................................................. 8
Certificate of Achievement for Excellence in Financial Reporting............................................................................................................................................ 19
Organization of North Carolina State Government, including principal state officials.............................................................................................................. 20
FINANCIAL SECTION
Report of Independent Auditor.................................................................................................................................................................................................. 24
Management's Discussion and Analysis.................................................................................................................................................................................... 28
Basic Financial Statements
Government-wide Financial Statements
Statement of Net Position — Exhibit A-1................................................................................................................................................................................. 52
Statement of Activities — Exhibit A-2...................................................................................................................................................................................... 54
Fund Financial Statements
Balance Sheet—Governmental Funds — Exhibit B-1............................................................................................................................................................... 58
Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position — Exhibit B-1a........................................................................... 59
Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Funds — Exhibit B-2......................................................................... 60
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances
of Governmental Funds to the Statement of Activities — Exhibit B-2a............................................................................................................................. 61
Statement of Net Position—Proprietary Funds — Exhibit B-3................................................................................................................................................. 62
Statement of Revenues, Expenses and Changes in Fund Net Position—Proprietary Funds — Exhibit B-4............................................................................... 66
Statement of Cash Flows—Proprietary Funds — Exhibit B-5.................................................................................................................................................. 68
Statement of Fiduciary Net Position—Fiduciary Funds — Exhibit B-6.................................................................................................................................... 72
Statement of Changes in Fiduciary Net Position—Fiduciary Funds — Exhibit B-7.................................................................................................................. 73
Notes to the Financial Statements.............................................................................................................................................................................................. 74
Required Supplementary Information
Schedule of Changes in the Net Pension Liability and Related Ratios—Cost-Sharing, Multiple-Employer, Defined Benefit Pension Plans............................ 188
Schedule of Changes in the Net Pension Liability and Related Ratios—Single-Employer, Defined Benefit Pension Plans...................................................... 190
Schedule of Employer and Nonemployer Contributions—Cost-Sharing, Multiple-Employer, Defined Benefit Pension Plans................................................. 192
Schedule of Employer and Nonemployer Contributions—Single-Employer, Defined Benefit Pension Plans............................................................................ 194
Schedule of Investment Returns—All Defined Benefit Pension Trust Funds............................................................................................................................ 196
Notes to Required Supplementary Information—Schedule of Employer Contributions............................................................................................................. 197
Schedule of the Primary Government's and Component Units' Proportionate Share of the Net Pension Liability..................................................................... 200
Schedule of the Primary Government's (Nonemployer) Proportionate Share of the Net Pension Liability................................................................................. 201
Schedule of the Primary Government and Component Units Contributions—Cost-Sharing, Multiple-Employer,
Defined Benefit Pension Plans.......................................................................................................................................................................................... 202
Schedule of Funding Progress—Other Postemployment Benefits............................................................................................................................................. 204
Schedule of Employer Contributions—Other Postemployment Benefits.................................................................................................................................. 205
Schedule of Revenues, Expenditures and Changes in Fund Balance—Budget and Actual
—(Budgetary Basis—Non-GAAP) General Fund............................................................................................................................................................ 208
Notes to Required Supplementary Information—Budgetary Reporting.................................................................................................................................... 209
Combining Fund Statements and Schedules
Nonmajor Governmental Funds
Combining Balance Sheet—Nonmajor Governmental Funds — Exhibit C-1............................................................................................................................ 216
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Governmental Funds — Exhibit C-2..................................... 217
Combining Balance Sheet—Nonmajor Special Revenue Funds — Exhibit C-3........................................................................................................................ 220
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Special Revenue Funds — Exhibit C-4................................. 222
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances
—Budget and Actual (Budgetary Basis—Non-GAAP) Nonmajor Special Revenue Funds — Exhibit C-5.................................................................... 224
Combining Balance Sheet—Nonmajor Capital Projects Funds — Exhibit C-6......................................................................................................................... 228
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Capital Projects Funds — Exhibit C-7................................... 229
Combining Balance Sheet—Nonmajor Permanent Funds — Exhibit C-8................................................................................................................................ 232
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Permanent Funds — Exhibit C-9........................................... 233
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances
—Budget and Actual (Budgetary Basis—Non-GAAP) Nonmajor Permanent Funds — Exhibit C-10.......................................................................... 234
State of North Carolina
4
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2015
Proprietary Funds
Nonmajor Enterprise Funds
Combining Statement of Net Position—Nonmajor Enterprise Funds — Exhibit D-1................................................................................................................ 240
Combining Statement of Revenues, Expenses and Changes in Fund Net Position—Nonmajor Enterprise Funds — Exhibit D-2............................................ 242
Combining Statement of Cash Flows—Nonmajor Enterprise Funds — Exhibit D-3................................................................................................................. 244
Internal Service Funds
Combining Statement of Net Position—Internal Service Funds — Exhibit E-1........................................................................................................................ 248
Combining Statement of Revenues, Expenses and Changes in Fund Net Position—Internal Service Funds — Exhibit E-2..................................................... 250
Combining Statement of Cash Flows—Internal Service Funds — Exhibit E-3.......................................................................................................................... 252
Fiduciary Funds
Combining Statement of Fiduciary Net Position—Investment Trust Funds — Exhibit F-1....................................................................................................... 258
Combining Statement of Changes in Fiduciary Net Position—Investment Trust Funds — Exhibit F-2............................................................................... 259
Combining Statement of Fiduciary Net Position—Private Purpose Trust Funds — Exhibit F-3............................................................................................... 262
Combining Statement of Changes in Fiduciary Net Position—Private Purpose Trust Funds — Exhibit F-4............................................................................ 263
Combining Statement of Changes in Assets and Liabilities—Agency Funds — Exhibit F-5.................................................................................................... 266
Component Units - Discretely Presented
Combining Statement of Net Position—Nonmajor Component Units — Exhibit G-1............................................................................................................... 272
Combining Statement of Activities—Nonmajor Component Units — Exhibit G-2.................................................................................................................. 274
Statement of Cash Flows—Major Component Unit — Exhibit G-3......................................................................................................................................... 276
STATISTICAL SECTION
Index to Statistical Section........................................................................................................................................................................................................ 279
Net Position by Component — Table 1..................................................................................................................................................................................... 280
Changes in Net Position — Table 2.......................................................................................................................................................................................... 282
Fund Balances of Governmental Funds — Table 3................................................................................................................................................................... 286
Changes in Fund Balances of Governmental Funds — Table 4................................................................................................................................................ 288
Schedule of Revenues by Source — General Fund — Table 5 ................................................................................................................................................. 290
Personal Income by Industry — Table 6.................................................................................................................................................................................... 292
Individual Income Tax Filers and Liability & Individual Income Tax Rates — Table 7............................................................................................................ 294
Taxable Sales by Business Group — Table 8............................................................................................................................................................................ 296
Sales Tax Revenue Payers by Business Group — Table 9........................................................................................................................................................ 298
Ratios of Outstanding Debt by Type — Table 10...................................................................................................................................................................... 302
Ratios of General Bonded and Similar Debt Outstanding — Table 11..................................................................................................................................... 304
Schedule of General Obligation Bonds Payable — Table 12.................................................................................................................................................... 306
Schedule of Special Indebtedness Debt — Table 13................................................................................................................................................................. 310
Pledged Revenue Coverage — Table 14.................................................................................................................................................................................... 312
Schedule of Demographic Data — Table 15............................................................................................................................................................................. 316
Principal Employers — Table 16............................................................................................................................................................................................... 318
Teachers and State Employees by Function — Table 17........................................................................................................................................................... 320
Operating Indicators by Function — Table 18.......................................................................................................................................................................... 322
Capital Asset Statistics by Function — Table 19...................................................................................................................................................................... 326
Required Supplementary Information—Ten-Year Claims Development Information—Public School Insurance Fund — Table 20......................................... 330
State of North Carolina
5
State of North Carolina
THIS PAGE INTENTIONALLY LEFT BLANK.
6
INTRODUCTORY
SECTION
State of North Carolina
Office of the State Controller
LINDA COMBS
STATE CONTROLLER
MAILING ADDRESS: 1410 Mail Service Center, Raleigh, North Carolina 27699-1410
STREET ADDRESS: 3512 Bush Street, Raleigh, North Carolina 27609
Phone (919) 707-0500 ~ Fax (919) 981-5444
http://www.osc.nc.gov ~~ An EEO/AA/AWD Employer
December 3, 2015
The Honorable Pat McCrory, Governor
Members of the North Carolina General Assembly
Citizens of North Carolina
In compliance with G.S. 143B-426.40H, it is our pleasure to provide you with the State of North Carolina’s 2015
Comprehensive Annual Financial Report (CAFR). This report has been prepared by the Office of the State Controller.
Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclo-sures,
rests with the state government and this office. To the best of our knowledge and belief, this financial report is complete
and reliable in all material respects. We believe all disclosures necessary to enable you to gain an understanding of the State's
financial activities have been included.
Although the State budgets and manages its financial affairs on the cash basis of accounting, G.S. 143B-426.40H requires
the Office of the State Controller to prepare a Comprehensive Annual Financial Report (CAFR) in accordance with generally
accepted accounting principles (GAAP) in the United States of America. Except for schedules clearly labeled otherwise, this
CAFR has been prepared in accordance with GAAP.
North Carolina’s State government management is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the State are protected from loss, theft or misuse and to ensure that adequate accounting
data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting
principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives
are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely
to be derived, and (2) the valuation of costs and benefits requires estimates and judgments by management.
In compliance with North Carolina’s General Statutes, an annual financial audit of the State financial reporting entity is
completed each year by the North Carolina Office of the State Auditor. The Auditor's examination was conducted in
accordance with auditing standards generally accepted in the United States of America and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and
the Auditor’s opinion has been included in this report. In addition, the State coordinates the Single Audit effort of all federal
funds through the State Auditor.
This letter of transmittal is intended to complement the management discussion and analysis (MD&A) and should be read in
conjunction with it. The MD&A provides an overview of the State’s financial activities addressing both governmental and
business-type activities reported in the government-wide financial statements. In addition, the MD&A focuses on the State’s
major funds: the General Fund, the Highway Fund, the Highway Trust Fund, the Unemployment Compensation Fund, the
EPA Revolving Loan Fund, the N.C. Turnpike Authority, and the N.C. State Lottery Fund. The MD&A can be found
immediately following the independent auditor’s report.
State of North Carolina
Profile of the State of North Carolina
North Carolina became the 12th state of the union in 1789. North Carolina is located on the Atlantic coast
and is bordered by Georgia, South Carolina, Tennessee and Virginia. The State has a land area of
approximately 50,000 square miles. The State’s estimated population is 10.04 million, making it the 9th
most populated state in the nation. Ninety-two percent of the State’s population lives in metropolitan
areas. The North Carolina coastline is 301 miles, the greatest distance east to west is 543 miles, and the
greatest distance north to south is 188 miles. The State’s elevation rises from sea level on the eastern
coastline to 6,684 feet at Mount Mitchell in the Appalachian mountain range on our western border.
There are 79,584 miles of roads, with Interstate 40 crossing North Carolina east to west, and Interstates
77, 85 and 95 crossing the State north to south. North Carolina’s capital and central state government
administration is located in Raleigh, in the central piedmont. Charlotte, Raleigh, Greensboro, Durham,
and Winston-Salem are North Carolina’s largest cities and there are 100 counties.
North Carolina continues to grow and to be an attractive place to live, to work, and to raise a family. The
State has been consistently ranked as one of the nation’s “Top Business Climates” according to Site
Selection magazine. It has taken the top honor 11 times in the last 15 years in the annual selection by the
magazine. In addition, North Carolina is ranked among the best business climates in the nation by CNBC,
Forbes and Chief Executive.
North Carolina’s state government consists of an executive branch, a legislative branch, and a judicial
branch. The executive branch is headed by the Governor. The Governor, Lieutenant Governor, and eight
other statewide elected officers form the Council of State. The State Constitution provides that, “A
Secretary of State, an Auditor, a Treasurer, a Superintendent of Public Instruction, an Attorney General,
a Commissioner of Agriculture, a Commissioner of Labor, and a Commissioner of Insurance shall be
elected by the qualified voters of the State….” All administrative departments, agencies, and offices of
the State and their respective functions, powers, and duties shall be allocated by law among and within
not more than 25 principal administrative departments.
The legislative power of the State is vested in the General Assembly, which consists of a Senate and a
House of Representatives. The Senate is composed of 50 Senators, elected on a biennial basis. The
House of Representatives is composed of 120 Representatives, elected on a biennial basis.
The Courts of the Judicial Branch are split into three divisions, the Appellate Division, the Superior Court
Division, and the District Court Division. Judges are elected on a non-partisan basis.
The State of North Carolina entity as reported in the CAFR includes all fund types of the departments,
agencies, boards, commissions and authorities governed and legally controlled by the State's executive,
legislative and judicial branches. In addition, the reporting entity includes legally separate component
units for which the State is financially accountable. The component units are discretely presented in the
government-wide financial statements. The State's discretely presented major component units are the
University of North Carolina System, the State's community colleges, and the State Health Plan. The
criteria for inclusion in the reporting entity and its presentation are defined by the Governmental
Accounting Standards Board (GASB) in its GASB Codification Section 2100. These criteria are
described in Note 1 of the accompanying financial statements.
The State and its component units provide a broad range of services to its citizens, including primary and
secondary education; higher education; health and human services; economic development; environment
and natural resources; public safety, corrections, and regulation; transportation; agriculture; and general
government services. The costs of these services are reflected in detail and in summary in this report.
The Old North
State,
The Tar Heel
State
Government
State Reporting
Entity and
Its Services
9
State of North Carolina
In addition to internal controls discussed previously, the State maintains budgetary controls. The
objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual
appropriated budget approved by the General Assembly. Activities of the General Fund, departmental
special revenue funds, and permanent funds are included in the annual appropriated budget. The Highway
Fund and the Highway Trust Fund, the State's major special revenue funds, are primarily budgeted on a
multi-year basis. Capital projects are funded and planned in accordance with the time it will take to
complete the project. The level of budgetary control (that is, the level at which expenditures cannot
legally exceed the appropriated amount) is exercised at both the departmental and university level, with
allotment control exercised by the State Controller, and on the program line-item levels requiring certain
approvals by the Director of the Budget. Legislative authorization of departmental expenditures appears
in the State Appropriations Bill. The budget approved by the General Assembly is the legal expenditure
authority; however, the Office of State Budget and Management may approve executive changes to the
legal budget as allowed by law. These changes result in the final budget presented in the required
supplementary information.
Economic Condition
During fiscal year 2014-15, the US economy continued to grow at a steady, moderate pace. North
Carolina’s economic conditions reflected the same steady improvements experienced by the nation’s
economy. Key industries in the State experienced strong growth during the fiscal year, especially the
Professional and Business Services sector, Construction, and Durable-Goods Manufacturing.
Employment improved, although wage growth fell below expectations. The State’s unemployment rate
dropped 0.4 percentage points during the year, falling from 6.2% to 5.8%. The State added 97,900 payroll
jobs, a significant gain over the 73,600 added the previous year. Wage and salary income grew by 4.2%,
which was improved over last year’s 3% but weaker than long-run expectations of 5% to 6%. For the
second half of 2015, economic conditions are expected to contribute to steady employment growth
increasing upward pressure on wage growth. In 2016, wages are forecast to approach growth rates closer
to the long-range average of 5.1%.
The very slow-pace of the recovery during the first five years after the Great Recession has finally ended
yet strong, expansionary economic growth struggles to gain traction. The national Gross Domestic
Product (GDP, a broad measure of economic activity) finished the last quarter of the fiscal year very
strong with 3.7% growth offsetting the previous quarter’s dismal 0.6% growth. Yet ongoing global
economic instability will continue to be a drag on the US’s ability to boost economic activity beyond the
moderate, mid-two percent annual growth rate.
Budgetary
Control
Overview
National
Economic
Outlook
United States Economic Indicators
FY2013-14 FY2014-15 FY2015-16 FY2016-17
Actual Projected Projected Projected
Economic growth (GDP)* 2.2% 2.6% 2.8% 2.7%
Personal Income 4.2% 4.2% 5.2% 6.1%
Corporate Pre-Tax Profits 3.6% 6.4% 6.2% 2.9%
Retails Sales 4.5% 4.9% 5.5% 5.6%
Unemployment Rate 6.8% 5.7% 5.0% 4.7%
Consumer Price Index 2.1% 0.1% 1.5% 2.2%
30-yr Fixed Mortgage Interest Rate 3.5% 4.3% 4.3% 5.7%
*Adjusted for inflation
10
State of North Carolina
The national economy has been hampered by an unequal recovery and an unstable global economy. The
aftermath of the global financial crisis continued to affect economies worldwide. This was especially true
in the Eurozone where economic growth and financial stability proved difficult for some of its members.
Uprisings in the Middle East added to this instability. Further complicating economic conditions was the
decline in oil prices, which are the result of both weaker global demand and higher output levels. In the
US, capital markets continued to perform well, but those improvements have not translated into
widespread improvements in the whole economy. Over the past two years, business investments, hiring,
and industrial production have periodically established some momentum offering hope that an
expansionary phase in the economy was on the horizon. Unfortunately, the momentum has gained little
traction and leaves us with a continuation of weaker overall growth in the economy than one might expect
six years after a recession’s end. The nation’s outlook for the remainder of 2015 and 2016 is for a
continuation of this modest, below-average economic growth. This means the pace of economic activity
is not expected to either significantly accelerate or decelerate over the next eighteen to twenty-four
months.
Economic indicators conveyed the subpar pace of growth during the fiscal year. The national economy
grew at a pace of 2.6%. This was slightly ahead of the pace of the previous fiscal year. The economy
appeared poised to move into a stronger expansionary phase with 2.9% annualized growth in the third
quarter of 2014. By the next quarter, rather than accelerating, growth had slowed to 2.5%. The next two
fiscal years’ economic activity is expected to maintain the current pace, growing by 2.8% and 2.7%,
respectively.
Improving economic activity during the year meant the dismal pace of employment growth would start
to improve. The nation’s average unemployment rate dropped from 6.8% to 5.7%. Previous drops in the
unemployment rate had mostly been attributed to a shrinking labor force rather than growing payrolls.
This fiscal year stronger employment growth was the main driver of the lower rate. Nonetheless, slack in
the labor market persisted and was reflected by weaker-than-expected wage growth. During the fiscal
year, total personal income in the nation rose by only 4.2%. Projected advancements in the economy
suggest that personal income growth will increase with 5.2% growth expected in fiscal year 2015-16.
Business profitability saw a major rebound after the recession, but since then profits have plateaued.
Many businesses coming out of the recession were bolstered by a global economic recovery spurred
primarily by emerging markets such as India and China. In the past year, export demand has weakened
considerably as global economic weakness intensified. National demand has not been able to pick up the
slack, thus expectations for profit growth were downgraded. Profits grew by 6.4% during the fiscal year.
Growth in the following years reflects ongoing weakness in the global economy plus an uptick in
domestic wages, thus lowering overall profits. For the upcoming fiscal years, profits are forecast to grow
6.2% and 2.9%, respectively.
Retail sales are a good indicator of an economy’s health. This key measure improved in fiscal year 2014-
15, although the pace of growth did not meet most forecasters’ expectations. As economic conditions
continue to stabilize and the employment picture improves, consumers are more willing to increase
spending. Household debt has increased the past two years reflecting more confident consumers. The
biggest drag has been stagnant wage growth. Continued improvements in employment and a stronger
wage growth will help boost retail sales over the next several years.
To summarize, the economy has settled into a subpar growth pattern in the 2.5% range. Gains, while
modest, have improved consumer spending. As the labor market tightens, wages are expected to improve
and should provide further support for increases in consumer spending. Global weakness, including the
decline in China’s economy, will keep the national economy from accelerating into a full expansionary
mode.
11
State of North Carolina
North Carolina Economic Indicators
FY2013-14 FY2014-15 FY2015-16 FY2016-17
Actual Projected Projected Projected
State Gross Product* 2.1% 2.4% 2.9% 3.2%
Personal Income 3.2% 4.5% 5.2% 5.3%
Wages & Salaries 3.0% 4.2% 5.1% 5.1%
Retail Sales 5.1% 5.6% 6.1% 6.5%
Unemployment Rate 6.2% 5.8% 5.8% 5.5%
Employment (Nonagricultural) 2.2% 2.4% 2.1% 2.2%
Population 1.0% 1.0% 1.2% 1.5%
Housing Starts -2.3% 12.4% 14.0% 18.0%
*Adjusted for Inflation
For North Carolina, as with the nation, the economy has strengthened, but the pace of growth has been
somewhat weaker than was expected at the start of the fiscal year. Economic indicators show that the
economy did pick up pace during the fiscal year. Stronger economic conditions overall resulted in the
State adding 97,900 jobs, a significant increase over the prior year. Most industries experienced solid
growth, but employment in non-durable manufacturing and government declined. The solid employment
gains did not translate to similar gains in wage and salary income, which increased by 4.2%.
Projections of the State’s key economic indicators reflect how the State’s recovery is expected to unfold.
Gross State Product, a broad measure of the State’s economic activity, is expected to show solid growth
in the next two fiscal years. Total personal income growth slowed in fiscal year 2013-14, but is expected
to progress over the next two years. For the fiscal year, total personal income rose 4.5%, well behind the
strong growth of 6% to 7% experienced in the years prior to the recession. Wage and salary income, a
component of total personal income, grew at 4.2% for the fiscal year. That was an improvement over the
dismal 3.2% growth the previous year and wages should continue to improve with advances in the labor
market. A return to long-term growth levels in wage and salary income is forecast for 2016.
The recovery in North Carolina gained strength and traction, yet never reached expansionary levels during
fiscal year 2014-15. Nonetheless, the increase in economic activity was enough that the State saw solid
improvement in employment. The unemployment rate at the end of the fiscal year fell to 5.8%, from 6.2%
at the start of the fiscal year. With a brighter economic outlook and a stronger labor market, retail sales
advanced at a rate of 5.6%. Going forward, retail sales are expected to make up ground from years of
slow growth by growing at a pace one to two percentage points above the long-term average growth rate
of 5.0%.
As the State’s economy continues to progress, employment prospects are expected to stabilize over the
next two fiscal years. Total Non-Agricultural employment growth is projected at 2.1% and 2.2%,
respectively. That would be slightly below this year’s growth, but would continue to add 90,000 to 95,000
jobs in each of the next two years. The construction industry had struggled to regain some of the jobs lost
during and after the recession. During fiscal year 2014-15, employment grew in this industry by 6.8%
(12,100 jobs). Despite the gains, there are now 61,000 fewer construction jobs than when the recession
began in December 2007, a drop of 24.3%. For fiscal year 2014-15, in addition to Construction,
Professional and Business Services, Construction, Durable-Goods Manufacturing; and Leisure and
Hospitality Services outpaced the overall growth in the State’s employment. Even as the State experiences
strong job growth the unemployment rate is expected to remain in the mid-five percent range as
discouraged workers who left the workforce re-enter given the better job prospects. The rate is projected
to average 5.8% in fiscal year 2015-16, and 5.5% in fiscal year 2016-17.
The housing recession and the subsequent adjustments in the real estate market have taken a long time to
unwind. A strong rebound in housing starts (new construction) was underway in 2012, mostly from pent-up
demand from the long housing downturn. In fiscal year 2013-14, housing starts stalled and declined
by 2.3%. They took off again in 2014 with yearly growth of 12.4%. Housing starts can provide valuable
North Carolina
Economic
Outlook
12
State of North Carolina
insight into construction jobs and ripple effects in other industries such as household furnishing and
appliance manufacturing. Additionally, in a healthy economy contractors will be more likely to take risks
starting new housing developments. Housing starts are expected to average just below 60,000 per year
during the biennium with growth of 14% and 18%, respectively. This would represent nearly double the
number of housing starts during the recession, but still would be 35,000 less annually when compared to
the peak year of 2006.
To summarize, the State’s economic conditions experienced steady improvement during most of the fiscal
year. Employment growth was the strongest since the 2007-2009 recession ended. The State’s economy
should track closely with the national economy the rest of 2015 and into 2016. By 2017, the State’s
economy is projected to grow at a pace faster than the national economy. The anticipated strengthening
of the economy should increase consumer demand and solidify employment growth. These projected
gains in employment will help to reduce the remaining slack in the labor market, and should place upward
pressure on wages. Rising employment and wage gains will greatly improve the health of the economy
as we move into 2016.
— Economic analysis prepared by Barry Boardman, Ph.D., Chief Economist
Fiscal Research Division, North Carolina General Assembly
October 5, 2015
13
State of North Carolina
Long-term Financial Planning and Major Initiatives
The North Carolina Retirement Systems administer four major retirement systems and several smaller
systems and pension funds. The largest of the major retirement systems is the Teachers’ and State
Employees’ Retirement System (TSERS).
The economic crisis of 2008 has had long-term effects that continue to require increased contributions
from the State in order to maintain the strength of TSERS. Funding the Retirement Systems is a shared
responsibility among employees, employers, and the Department of State Treasurer through investment
earnings. Effective July 1, 2014, the State established an employer contribution rate of 9.15% of
compensation for TSERS which remained effective for the fiscal year beginning July 1, 2015. This
contribution rate exceeds the calculated Actuarially Required Contribution (ARC) rate of 8.69%. Setting
the contribution rate at or above the ARC is a significant action taken by the General Assembly to ensure
long-term fiscal health of the pension plan.
The 2014 General Assembly enacted a contribution-based cap on pension benefits for members retiring
from TSERS and the Local Government Employers’ Retirement System. The benefit cap serves to control
the practice of “pension spiking,” whereby a member's compensation significantly increases during or
immediately preceding the four-year period over which compensation is averaged in order to calculate
the member’s retirement benefit. The cap approximately corresponds with the annuitized equivalent of
the total accumulated balance of employee contributions multiplied by a factor selected every five years
by the Boards of Trustees.
The 2015 General Assembly established statutory procedures for agencies entering or exiting TSERS and
Local Government Employees’ Retirement System (LGERS) to mitigate the financial impact of
unanticipated agency closure or legislative removal. Agencies electing to enter the Retirement Systems
must undergo a financial review process after the first year of participation. Board of Trustee members
were given authority to grant or deny the entering agency permanent admission based on the financial
review. The new provisions also provide for an agency to pay a withdrawal liability to offset costs due
to unforeseen actuarial effects of an agency’s removal.
Additional legislation from the 2015 session also gives authority to the State Treasurer to intercept State
appropriations allocated to agencies and public school employers to recover outstanding debts due to the
Retirement Systems.
The Department of State Treasurer (DST) completed a three year project to upgrade the state’s banking
system in July 2015. The upgraded system provides additional functionality and efficiencies. The
Department of State Treasurer and the Office of the State Controller are working jointly on the second
phase of the project to include replacement of the state’s aged cash management system which will
integrate with the new banking system. The second phase is anticipated to be completed in 2016.
Leaders of this state saw the need to establish a nonprofit organization to work with the public and private
sector entities of North Carolina to focus on growth in North Carolina. The Economic Development
Partnership of North Carolina, Inc. was created in 2013 and began operations in October 2014, after
completion of its fundraising requirements. The organization is tasked with marketing the attributes
North Carolina has to offer, to recruit new employers to the state, to market North Carolina’s exports, and
to attract tourists to spend their time and resources in the state.
North
Carolina
Pension
Funds
Banking
Operations
Economic
Development
Partnership of
North Carolina, Inc.
14
State of North Carolina
Relevant Financial Policies
General Statute 143C-4-2 established the Savings Reserve Account as a reserve in the General Fund. The
State Controller “shall reserve to the Savings Reserve Account one-fourth of any unreserved fund balance,
as determined on a cash basis, remaining in the General Fund at the end of each fiscal year.”
The Savings Reserve Account is a component of the unappropriated General Fund balance and serves as
the State’s rainy day fund. Funds in the Savings Reserve Account shall be available for expenditure only
upon an act of appropriation by the General Assembly. The General Assembly recognizes the need to
establish and maintain sufficient reserves to address unanticipated events and circumstances such as
natural disasters, economic downturns, threats to public safety, health, and welfare, and other
emergencies. It is a goal of the State to accumulate and maintain a balance in the Savings Reserve
Account equal to or greater than 8% of the prior year’s General Fund appropriation budget.
At the beginning of fiscal year 2014-15, the balance of the Savings Reserve Account was $651.6 million.
Session Law 2015-241 authorized the State Controller to make a transfer of $200 million from the General
Fund’s unreserved fund balance at June 30, 2015 to the Savings Reserve Account. The balance at the
end of the fiscal year 2014-2015 was $851.6 million. This represents 4.13% of the prior year’s General
Fund appropriation budget.
General Statute 143C-4-3 established the Repairs and Renovations Reserve Account (R&R Account) as
a reserve in the General Fund. The State Controller “shall reserve to the Repairs and Renovations Reserve
Account one-fourth of any unreserved fund balance, as determined on a cash basis, remaining in the
General Fund at the end of each fiscal year.”
The funds in the R&R Account shall be used only for the repair and renovation of State facilities and
related infrastructure that are supported from the General Fund. Funds reserved to the R&R Account
shall be available for expenditure only upon an act of appropriation by the General Assembly. At the
beginning of fiscal year 2014-15, the balance of the R&R Account was $11.6 million. Session Law 2015-
241 authorized the State Controller to make a transfer of $400 million from the General Fund’s unreserved
fund balance to the R&R Account. This created a year-end balance of $411.6 million.
The 2004 General Assembly passed legislation creating the Debt Affordability Advisory Committee. The
Committee is charged, on an annual basis, with advising the Governor and the General Assembly of the
estimated debt capacity of the State for the upcoming 10 fiscal years. The Committee is also required to
recommend other debt management policies consistent with sound management of the State’s debt.
The Committee is responsible for preparing an annual debt affordability study and establishing guidelines
for evaluating the State’s debt burden. The Committee is required to report its findings and
recommendations to the Governor, the General Assembly, and the Fiscal Research Division of the
General Assembly by February 1 of each year.
The Committee has adopted the ratio of debt service as a percentage of revenues as the controlling metric
that determines the State’s debt capacity. The 2015 study indicated over the ten year planning horizon
and after adjusting revenue for the tax rate changes passed during the last legislative session, the State’s
revenue picture is positive overall, reflecting a continued economic recovery. The study found that the
State’s General Fund has debt capacity of $700 million in each of the next 10 years. The ratio of debt
service to revenues will peak at 3.66%, notably below the 4% target.
The following target and ceiling guidelines are the basis for calculating the recommended amount of
General Fund-supported debt the State could prudently authorize and issue over the next 10 years:
Savings Reserve
Account
Repairs and
Renovations
Reserve
Account
Debt Affordability
Guidelines
15
State of North Carolina
1. Net tax-supported debt service as a percentage of general tax revenues should be targeted at no
more than 4% and not exceed 4.75%;
2. Net tax-supported debt as a percentage of personal income should be targeted at no more than
2.5% and not exceed 3.0%; and
3. The amount of debt to be retired over the next ten years should be targeted at no less than 55%
and not decline below 50%.
The Committee recommended continuing the State’s historically conservative centralized debt
management practices. The Committee strongly encouraged the General Assembly to adopt language
restricting the ability of State entities to enter into financial arrangements that incur debt or debt-like
obligations. The Committee strongly opposed the proposal for the State to provide credit support for debt
issues of component unit universities and other State entities whose source of repayment is project
revenues.
Lastly, the Committee cautioned that care should be taken as the State enacts laws that permit the
procurement and financing of assets through the use of public private partnerships (P3s). While P3s may
appear to provide a new source of funds in a time of diminished revenues and debt capacity, such
agreements often contain financing arrangements with the private entity that could result in that entity
incurring debt or obligations secured, directly or indirectly by governmental payments or charges to the
citizens. In the Committee’s view, the prioritization of capital projects and issuance of obligations that
increase the State’s debt burden should remain the prerogative of the General Assembly.
The 2015 General Assembly enacting legislation requiring each constitution institution of the University
of North Carolina to conduct an annual debt affordability study. This will require the universities to
establish guidelines for maintaining prudent debt levels and a system for prioritizing university capital
needs, when the needs exceed the new debt capacity. The Board of Governors shall advise the Governor
and General Assembly annually on the estimated debt capacity for the upcoming five fiscal years.
The 2013 General Assembly passed significant tax reform legislation for the State of North Carolina.
The tax reform legislation provided for a corporate income tax rate reduction for the 2016 tax year
provided the state reached a target of $20.2 billion in General Fund tax revenues. General fund tax
revenues during the 2014-2015 fiscal year exceeded the target and the corporate income tax rate for the
2016 tax year will be reduced. Subsequent legislation by the 2015 General Assembly further reduces the
rate for any subsequent tax years provided that the General Fund revenues collected during the preceding
fiscal year exceeds $20.975 billion.
Awards and Acknowledgements
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to the State of North Carolina for its
Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2014. This was the
21st consecutive year (1994 to 2014) the State has received the prestigious national award recognizing
conformance with the highest standards for preparation of state and local government financial reports.
A Certificate of Achievement is valid for a period of one year only. We believe our current report
continues to conform to the Certificate of Achievement program requirements, and we are submitting it
to the GFOA.
Tax Policy
Certificate of
Achievement
16
State of North Carolina
The North Carolina Teachers’ and State Employees’ Retirement System was awarded the Public Pension
Standards Award for Funding and Administration for the 2014 calendar year in recognition for meeting
professional standards for plan funding and administration as set forth in the Public Pension Standards.
In conclusion, we believe this report provides useful data to all parties using it in evaluating the financial
activity of the State of North Carolina. We in the Office of the State Controller express our gratitude to
all the financial officers throughout the State and to the Office of the State Auditor for their dedicated
efforts in assisting us in the preparation of this report. Any questions concerning the information
contained in this report should be directed to the Office of the State Controller at (919) 707-0500.
Respectfully submitted,
Linda Combs
State Controller
Acknowledgments
17
CERTIFICATE OF ACHIEVEMENT
State of North Carolina
ORGANIZATION OF NORTH CAROLINA STATE GOVERNMENT
INCLUDING PRINCIPAL STATE OFFICIALS
EXECUTIVE BRANCH
Council of State
Governor
Pat McCrory
Lieutenant Governor
Dan Forest*
Secretary of State
Elaine F. Marshall
State Auditor
Beth A. Wood
State Treasurer
Janet Cowell
State Superintendent of
Public Instruction
Dr. June St. Clair
Atkinson
Attorney General
Roy Cooper
Commissioner of
Agriculture
Steven W. Troxler
Commissioner of
Labor
Cherie Berry
Commissioner of
Insurance
Wayne Goodwin
Cabinet Secretaries — Appointed by the Governor
Administration
Bill Daughtridge, Jr.
Public Safety
Frank L. Perry
Cultural Resources
Susan W. Kluttz
Commerce
John E. Skvarla, III
Environment
& Natural Resources
Donald R. van der Vaart
Health and Human
Services
Dr. Aldona Wos
Revenue
Lyons Gray
Transportation
Anthony J. Tata
Appointed by Governor,
confirmed by Legislature
State Controller
Dr. Linda Combs
Dr. R. Scott Ralls
President
Thomas W. Ross
President
Appointed by University
Board of Governors
Appointed by State Board of
Community Colleges
20
State of North Carolina
LEGISLATIVE BRANCH JUDICIAL BRANCH
Component Units
State of North Carolina Web Page
http://www.ncgov.com
North Carolina
Supreme Court
Chief Justice
Mark D. Martin
Associate Justices
Robert H. Edmunds, Jr.
Paul M. Newby
Robin E. Hudson
Barbara Jackson
Cheri Beasley
Sam Ervin, IV
Administrative
Office of the Courts
Judge Marion Warren
Director
University of North
Carolina System
Community Colleges State Education
Assistance Authority
General Assembly
Senate
House of
Representatives
Speaker
Tim Moore
Speaker Pro Tempore
Paul Stam
Majority Leader
Mike Hager
Minority Leader
Larry D. Hall
President Pro Tempore
Philip Berger
Deputy Pres. Pro Tempore
Louis Pate
Majority Leader
Harry Brown
Minority Leader
Dan Blue
*Note:
Article II of the NC Constitution
provides that the Lieutenant
Governor shall serve as
President of the Senate.
The Golden LEAF, Inc. N.C. Housing Finance
Agency
State Health Plan
University of North
Carolina System
Community Colleges State Health Plan
Other Component Units
21
State of North Carolina
THIS PAGE INTENTIONALLY LEFT BLANK.
22
FINANCIAL
SECTION
State of North Carolina June 30, 2015
24
State of North Carolina June 30, 2015
25
State of North Carolina June 30, 2015
26
MANAGEMENT’S
DISCUSSION AND
ANALYSIS
State of North Carolina June 30, 2015
Financial
Highlights
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
The following is a narrative overview and analysis of the State of North Carolina’s (the State) financial
performance for the fiscal year ended June 30, 2015. Please read it in conjunction with the transmittal letter at
the front of this report and with the State's financial statements, which follow this section.
Government-wide Financial Statements
 The State’s total net position increased by $4.95 billion or 12.05% as a result of this year’s operations. Net
position of governmental activities and business-type activities increased by $3.26 billion (or 8.23%) and
$1.69 billion (or 114.4%), respectively. At year-end, net position of governmental activities and business-type
activities totaled $42.86 billion and $3.17 billion, respectively.
 Component units reported net position of $22.83 billion, an increase of $941.7 million or 4.3% from the
previous year. The majority of the net position is attributable to the University of North Carolina System,
a major component unit.
Fund Financial Statements
 The fund balance of the General Fund increased from $1.55 billion at June 30, 2014 (as restated) to $2.51
billion at June 30, 2015, an increase of 61.44%. A significant decrease in individual income tax refunds,
due to tax law changes, is the main contributor to the fund balance increase. Tax refunds were lower due
to the elimination of many deductions and tax credits and taxpayers not adjusting their withholding
amounts for the 2014 tax year.
 The fund balance of the Highway Fund increased 65.68% to $367.09 million at June 30, 2015. The
increase is attributable, in part, to the issuance of $264.93 million in grant anticipation vehicle (GARVEE)
bonds in May 2015.
 The fund balance of the Highway Trust Fund increased 29.45% to $1.13 billion at June 30, 2015. The
increase is due, in part, to the continued growth in new car sales, which led to an increase in the highway
use tax.
 The Unemployment Compensation Fund reported net position of positive $1.14 billion at June 30, 2015
compared to negative $370.52 million at June 30, 2014. The improvement in net position is attributable to
the drop in the State’s unemployment rate and the implementation of Session Law 2013-2. The State paid
off the federal unemployment debt (amount that was advanced to finance State unemployment benefit
payments) on April 30, 2015.
 Net ticket sales of the N.C. State Lottery Fund (Lottery) increased 7.23% from the previous fiscal year to
$1.97 billion. As required by law, the Lottery transferred $526.43 million to the General Fund to support
educational programs.
 The net position of the N.C. Turnpike Authority (Authority) increased 21.51% to $335.96 million at June
30, 2015. Total operating revenues increased 24.21% to $30.71 million primarily due to the increase in
toll revenues. The Authority receives gap funding of debt service from the Highway Trust Fund.
 The net position of the EPA Revolving Loan Fund increased 6.94% to $1.5 billion.
Capital Assets
 The State’s investment in capital assets (net of accumulated depreciation) was $47.09 billion, an increase
of 3.27% from the previous fiscal year-end.
 Significant year-end construction in progress amounts were for State highway projects ($1.58 billion), a
toll road project ($263 million), new psychiatric hospitals ($226 million), and a new system for managing
and administering social service benefits ($301 million).
Long-term Debt
 The State had total long-term debt outstanding (bonds, special indebtedness, and notes payable) of $7.91
billion, a decrease of 1.21% from the previous fiscal year-end. The State issued $231.36 million in general
obligation bonds and $264.93 million in GARVEE bonds for its governmental activities. Additionally, the
State refinanced $309.2 million of its existing certificates of participation and limited obligation bonds to
take advantage of lower interest rates. The refinancing is expected to reduce future debt service payments
by approximately $21 million.
 In connection with the general obligation bonds, all three rating agencies affirmed the triple-A credit rating
for the State. The rating agencies recognized the State’s historically conservative budgeting, financial
management, and debt issuance practices. North Carolina remains one of only 10 states with a triple-A
rating from all three rating agencies.
28
State of North Carolina June 30, 2015
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is an introduction to the State’s basic financial statements, which comprise three components: 1) government-wide
financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains additional required
supplementary information (Pension and other postemployment benefits trend information and General Fund budgetary schedule) and other
supplementary information (combining financial statements) in addition to the basic financial statements. These components are described
below.
Government-wide Financial Statements
The Statement of Net Position and the Statement of Activities are two financial statements that report information about the State, as a
whole, and about its activities that should help answer this question: Is the State, as a whole, better off or worse off as a result of this year’s
activities? These statements include all non-fiduciary assets, deferred outflows of resources, liabilities, and deferred inflows of resources
using the accrual basis of accounting. The current year’s revenues and expenses are taken into account regardless of when cash is received
or paid. The Statement of Net Position (pages 52 and 53) presents all of the State’s assets, deferred outflows of resources, liabilities, and
deferred inflows of resources, with the sum of these components reported as “net position.” Over time, increases and decreases in net
position measure whether the State’s financial position is improving or deteriorating.
The Statement of Activities (pages 54 and 55) presents information showing how the State’s net position changed during the most recent
fiscal year. All changes in net position are reported as soon as the underlying events giving rise to the change occur, regardless of the timing
of related cash flows. Therefore, revenues and expenses are reported in these statements for some items that will only result in cash flows
in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave).
In the government-wide financial statements, the State’s activities are divided into three categories:
 Governmental Activities – Most of the State’s basic services are reported under this category. Taxes and intergovernmental revenues
generally fund these services.
 Business-type Activities – The State charges fees to customers to help it cover all or most of the cost of certain services it provides. The
State’s Unemployment Compensation Fund, the EPA Revolving Loan Fund, the N.C. State Lottery Fund, and the N.C. Turnpike
Authority are the predominant business-type activities.
 Discretely Presented Component Units – Component units are legally separate organizations for which the elected officials of the
primary government are financially accountable. A description of the component units and an address for obtaining their separately
issued financial statements can be found beginning on page 76. Discretely presented component units are combined and displayed in a
separate discrete column in the government-wide financial statements to emphasize their legal separateness from the State. In addition,
financial statements for major component units are presented in the notes to the financial statements (pages 172 and 173).
Fund Financial Statements
The fund financial statements provide more detailed information about the State’s most significant funds (i.e., major funds) – not the State
as a whole. A fund is a fiscal and accounting entity with a self-balancing set of accounts that the State uses to keep track of specific sources
of funding and spending for particular purposes. In addition to the major funds, page 216 begins the individual fund data for the nonmajor
funds. The State's funds are divided into three categories (governmental, proprietary, and fiduciary) and they use different accounting
approaches.
Governmental funds – Most of the State's basic services are reported in the governmental funds, which focus on how cash and other
financial assets that can readily be converted to cash flow in and out (i.e., inflows and outflows of spendable resources) and the balances
left at year-end that are available for spending (i.e., balances of spendable resources). Consequently, the governmental fund financial
statements provide a detailed short-term view that helps users determine whether there are more or fewer financial resources that can be
spent in the near future to finance the State's programs. The State prepares the governmental fund financial statements using the modified
accrual basis of accounting and a current financial resources measurement focus. Because this information does not encompass the
additional long-term focus of the government-wide statements, a reconciliation schedule, which follows each of the governmental fund
financial statements, explains the relationships (or differences) between them. Information is presented separately in the governmental fund
financial statements for the General Fund, the Highway Fund, and the Highway Trust Fund, all of which are considered to be major funds.
Data for all other governmental funds are combined into a single aggregated presentation. Individual fund data for each of these nonmajor
governmental funds is provided in the form of combining statements elsewhere in this report.
Proprietary funds – When the State charges customers for the services it provides, whether to outside customers or to agencies within the
State, these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize accrual accounting,
which is the same method used by private sector businesses. Enterprise funds are used to report activities for which fees are charged to
external users for goods and services. The Unemployment Compensation Fund, the EPA Revolving Loan Fund, the N.C. State Lottery
Fund, and the N.C. Turnpike Authority are our most significant enterprise funds. Internal service funds are used to report activities that
29
State of North Carolina June 30, 2015
provide goods and services to the State’s other programs and activities on a cost-reimbursement basis, such as the State Property Fire
Insurance Fund, the Motor Fleet Management Fund, Computing Services Fund, and the State Telecommunications Services Fund. Because
the State’s internal service funds predominantly benefit governmental rather than business-type functions, they have been included within
governmental activities in the government-wide financial statements.
Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. Information is
presented separately in the proprietary fund financial statements for the Unemployment Compensation Fund, the EPA Revolving Loan
Fund, the N.C. State Lottery Fund, and the N.C. Turnpike Authority, all of which are considered to be major funds. Conversely, separately
aggregated columns are presented for the nonmajor enterprise funds and the internal service funds. Individual fund data for the nonmajor
enterprise funds and internal service funds is provided in the form of combining statements elsewhere in this report.
Fiduciary funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds
are not reflected in the government-wide financial statements because the resources of those funds are not available to support the State’s
own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The State's fiduciary activities are
reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. These funds include pension and other
employee benefit trust funds, private-purpose trust funds, investment trust funds, and agency funds.
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund
financial statements. The notes to the financial statements can be found beginning on page 76 of this report.
Required Supplementary Information
Required Supplementary Information (RSI) follows the basic financial statements and notes to the financial statements. The RSI is mandated
by the GASB and includes 1) pension plan and employer trend information related to the net pension liability, employer contributions, and
investment returns, 2) other postemployment benefits trend information related to funding progress and employer contributions, and 3)
General Fund budgetary comparison schedules reconciling the statutory to the generally accepted accounting principles fund balances at
fiscal year-end.
Other Supplementary Information
Other supplementary information includes the introductory section; combining financial statements for nonmajor governmental funds,
nonmajor enterprise funds, internal service funds, fiduciary funds, and nonmajor discretely presented component units; a statement of cash
flows for the State Health Plan, a major component unit, which does not issue separate financial statements; and the statistical section.
30
State of North Carolina June 30, 2015
FINANCIAL ANALYSIS OF THE STATE AS A WHOLE
The State’s overall assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $46.03 billion (total
primary government) at the close of the most recent fiscal year. Over time, increases or decreases in net position may serve as a useful
indicator of whether the financial position of the State is improving or deteriorating. The following table was derived from the government-wide
Statement of Net Position:
Net Position as of June 30, 2015 and 2014
(dollars in thousands)
Total
Percentage
2014 2014 2014 Change
2015 (as restated) 2015 (as restated) 2015 (as restated) 2014-2015
Current and other non-current
assets.................... $ 10,865,267 $ 9,607,068 $ 3,962,905 $ 3,394,803 $ 14,828,172 $ 13,001,871 14.05%
Capital assets, net................. 45,804,367 44,388,041 1,287,441 1,213,315 47,091,808 45,601,356 3.27%
Total assets.......................... 56,669,634 53,995,109 5,250,346 4,608,118 61,919,980 58,603,227 5.66%
Total deferred outflows
of resources..................... 607,444 532,787 4,599 6,180 612,043 538,967 13.56%
Long-term liabilities.............. 8,666,978 9,887,589 1,654,144 2,679,671 10,321,122 12,567,260 (17.87%)
Other liabilities...................... 4,717,689 5,037,685 413,186 458,006 5,130,875 5,495,691 (6.64%)
Total liabilities................... 13,384,667 14,925,274 2,067,330 3,137,677 15,451,997 18,062,951 (14.45%)
Total deferred inflows
of resources..................... 1,030,957 0 21,666 0 1,052,623 — NA
Net position:
Net investment in
capital assets..................... 43,612,584 42,139,297 534,380 442,100 44,146,964 42,581,397 3.68%
Restricted.............................. 1,061,817 861,988 1,256 1,940 1,063,073 863,928 23.05%
Unrestricted.......................... (1,812,947) (3,398,663) 2,630,313 1,032,581 817,366 (2,366,082) 134.55%
Total net position............... $ 42,861,454 $ 39,602,622 $ 3,165,949 $ 1,476,621 $ 46,027,403 $ 41,079,243 12.05%
Governmental Business-type Total Primary
Activities Activities Government
The largest component of the State’s net position ($44.15 billion) reflects its investment in capital assets (land, buildings, machinery and
equipment, state highway system, toll road system, and other capital assets), less related debt still outstanding that was used to acquire or
construct those assets. Restricted net position is the next largest component ($1.06 billion). Net position is restricted when constraints
placed on their use are 1) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or 2) legally
imposed through constitutional provisions. The remaining portion, unrestricted net position, consists of net position that does not meet the
definition of “restricted” or “net investment in capital assets.”
The government-wide statement of net position for governmental activities reflects a negative $1.81 billion unrestricted net position balance.
The State of North Carolina, like many other state and local governments, issues general obligation debt and special indebtedness and
distributes the proceeds to local governments and component units. The proceeds are used to construct new buildings and renovate and
modernize existing buildings on the State’s community college and university campuses, assist county governments in meeting their public
school building capital needs, and to provide grants and loans to local governments for clean water and natural gas projects. Of the $6.87
billion of bonds and special indebtedness outstanding for governmental activities at June 30, 2015, $4.39 billion is attributable to debt
issued as state aid to component units (universities and community colleges) and local governments. The balance sheets of component unit
and local government recipients reflect ownership of the related constructed capital assets without the burden of recording the debt
obligation. The policy of issuing bonded debt and distributing the cash proceeds to non-primary government (non-state) entities has been
in place for decades. However, by issuing such debt, the State is left to reflect significant liabilities on its statement of net position (reflected
in the unrestricted net position component) without the benefit of recording the capital assets constructed or acquired with the proceeds
from the debt issuances. Additionally, as of June 30, 2015, the State’s governmental activities have significant unfunded liabilities for
compensated absences of $456.7 million, net pension liabilities of $344.96 million, worker’s compensation of $202.16 million, and a court
judgment payable of $737.3 million (see Note 8 to the financial statements). The State of North Carolina implemented GASB Statements
68 and 71 this year (see Note 22 to the financial statements). In 2008, a Superior Court judge ruled that certain civil fines and penalties
should have been remitted to North Carolina public schools and not diverted to other uses. These unfunded liabilities also contribute to the
negative unrestricted net position balance for governmental activities.
31
State of North Carolina June 30, 2015
The State’s overall net position increased $4.95 billion or 12.05% (total primary government) from the prior fiscal year. The net position
of the governmental activities increased $3.26 billion or 8.23% and business-type activities increased $1.69 billion or 114.4%. The
following financial information was derived from the government-wide Statement of Activities:
Changes in Net Position for the Fiscal Years Ended June 30, 2015 and 2014
(dollars in thousands)
Governmental Business-type Total Primary Total
Activities Activities Government Percentage
2014 2014 2014 Change
2015 (as restated) 2015 (as restated) 2015 (as restated) 2014-2015
Revenues
Program revenues
Charges for services...................................... $ 2,304,142 $ 2,202,085 $ 3,726,105 $ 3,670,399 $ 6,030,247 $ 5,872,484 2.69%
Operating grants and contributions.............. 16,152,680 15,261,306 409,351 347,108 16,562,031 15,608,414 6.11%
Capital grants and contributions.................. 942,238 1,260,306 21,251 11,942 963,489 1,272,248 (24.27%)
General revenues
Taxes:
Individual income tax................................ 11,288,542 10,576,575 — — 11,288,542 10,576,575 6.73%
Corporate income tax............................... 1,272,879 1,318,091 — — 1,272,879 1,318,091 (3.43%)
Sales and use tax....................................... 6,869,090 5,839,362 — — 6,869,090 5,839,362 17.63%
Gasoline tax.............................................. 1,945,462 1,907,803 — — 1,945,462 1,907,803 1.97%
Franchise tax............................................. 556,786 888,815 — — 556,786 888,815 (37.36%)
Highway use tax....................................... 653,931 596,801 — — 653,931 596,801 9.57%
Insurance tax............................................. 529,927 476,402 — — 529,927 476,402 11.24%
Beverage tax.............................................. 360,280 342,784 — — 360,280 342,784 5.10%
Tobacco products tax............................... 279,795 273,426 — — 279,795 273,426 2.33%
Other taxes............................................... 288,340 348,938 — — 288,340 348,938 (17.37%)
Tobacco settlement...................................... 137,910 139,169 — — 137,910 139,169 (0.90%)
Unrestricted investment earnings................. 20,139 19,452 — — 20,139 19,452 3.53%
Miscellaneous............................................... 34,167 192,002 4 3 34,171 192,005 (82.20%)
Total revenues............................................ 43,636,308 41,643,317 4,156,711 4,029,452 47,793,019 45,672,769 4.64%
Expenses
General government...................................... 1,159,012 1,080,982 — — 1,159,012 1,080,982 7.22%
Primary and secondary education................ 10,224,967 9,772,994 — — 10,224,967 9,772,994 4.62%
Higher education........................................... 3,859,549 3,901,543 — — 3,859,549 3,901,543 (1.08%)
Health and human services........................... 18,705,192 17,812,888 — — 18,705,192 17,812,888 5.01%
Economic development................................ 408,289 420,464 — — 408,289 420,464 (2.90%)
Environment and natural resources.............. 490,185 484,718 — — 490,185 484,718 1.13%
Public safety, corrections and regulation...... 2,895,244 2,911,146 — — 2,895,244 2,911,146 (0.55%)
Transportation............................................. 2,673,649 2,607,663 — — 2,673,649 2,607,663 2.53%
Agriculture.................................................... 165,735 191,242 — — 165,735 191,242 (13.34%)
Interest on long-term debt............................ 216,519 216,521 — — 216,519 216,521 0.00%
Unemployment compensation..................... — — 349,069 700,190 349,069 700,190 (50.15%)
N.C. State Lottery........................................ — — 1,450,494 1,341,219 1,450,494 1,341,219 8.15%
EPA Revolving Loan.................................... — — 22,965 27,789 22,965 27,789 (17.36%)
N.C. Turnpike Authority............................. — — 89,004 88,278 89,004 88,278 0.82%
Regulatory programs.................................... — — 90,397 86,253 90,397 86,253 4.80%
Insurance programs...................................... — — 21,632 18,427 21,632 18,427 17.39%
North Carolina State Fair............................. — — 14,975 13,957 14,975 13,957 7.29%
Other business-type activities..................... — — 12,364 12,917 12,364 12,917 (4.28%)
Total expenses............................................ 40,798,341 39,400,161 2,050,900 2,289,030 42,849,241 41,689,191 2.78%
Increase (decrease) in net position
before contributions and transfers............ 2,837,967 2,243,156 2,105,811 1,740,422 4,943,778 3,983,578 24.10%
Contributions to permanent funds............... 4,382 3,861 — — 4,382 3,861 13.49%
Transfers...................................................... 416,483 429,810 (416,483) (429,810) — — 0.00%
Increase (decrease) in net position.......... 3,258,832 2,676,827 1,689,328 1,310,612 4,948,160 3,987,439 24.09%
Net position - beginning - restated............... 39,602,622 36,925,795 1,476,621 166,009 41,079,243 37,091,804 10.75%
Net position - ending.................................... $ 42,861,454 $ 39,602,622 $ 3,165,949 $ 1,476,621 $ 46,027,403 $ 41,079,243 12.05%
32
State of North Carolina June 30, 2015
Governmental Activities. For fiscal year 2015, revenues outpaced expenses and when combined with transfers from the State’s business-type
activities, an increase in net position of $3.26 billion (or 8.23%) resulted for governmental activities. Total revenues increased by
4.79% ($1.99 billion) while total expenses increased more slowly at 3.55% ($1.4 billion). The increase in total revenues is attributable to
major tax changes enacted by the General Assembly, which included a reduction in individual income and corporate income tax rates
(effective January 1, 2014) and a broadening of the sales and use tax base. A significant decrease in tax refunds due to the elimination of
many deductions and tax credits and taxpayers not adjusting their withholding amounts for the 2014 tax year explains the increase in
individual income tax revenues. Operating grants and contributions increased because of more spending in federally supported programs,
such as Medicaid. However, capital grants and contributions decreased due to a reduction in federal funding for transportation.
The following chart reflects the dollar change in the revenues by source of governmental activities between fiscal years 2014 and 2015:
Dollar Change in Governmental Activities Revenues by Source
Between Fiscal Years 2014 and 2015
$(157)
$(1)
$(220)
$1,030
$(45)
$712
$(318)
$891
$102
$(500) $(400) $(300) $(200) $(100) $— $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100
Other revenues
Tobacco settlement
Other taxes
Sales and use tax
Corporate income tax
Individual income tax
Capital grants and contributions
Operating grants and contributions
Charges for services
(dollars in millions)
The following chart reflects the dollar change in the functional expenses of governmental activities between fiscal years 2014 and 2015:
Dollar Change in Governmental Activities Functional Expenses
Between Fiscal Years 2014 and 2015
$—
$(26)
$66
$(16)
$5
$(12)
$892
$(42)
$452
$78
$(200)$(100) $— $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000
Interest on long-term debt
Agriculture
Transportation
Public safety, corrections and regulation
Environment and natural resources
Economic development
Health and human services
Higher education
Primary and secondary education
General government
(dollars in millions)
33
State of North Carolina June 30, 2015
The increase in total expenses of 3.55% is attributable to spending increases in the State’s two largest functional areas, health and human
services and primary and secondary education. The increase in health and human services is due primarily to increased spending for
Medicaid (the State’s largest public assistance program). The growth in primary and secondary education is due to salary increases for
State-funded local public school district employees, including teachers and instructional support, and other personnel. The pay for all
educators was increased to at least $33 thousand annually. Higher education spending decreased during the current period due, in part, to
smaller distributions of higher education bond proceeds in fiscal year 2015 compared to the prior year. Also, escheat funding for grants,
loans, and scholarships for students was lower this year.
Medicaid is a federal entitlement program, which means individuals found eligible for Medicaid have legal rights to receive services and
cannot be denied coverage by the State. In North Carolina, Medicaid is administered by the State and counties and financed with federal
and state funds. Medicaid serves as the State’s safety net program for eligible individuals who lose jobs and health insurance coverage. As
such, it is sensitive to economic volatility. Higher growth rates occur during years of economic distress and when major Medicaid
expansions are enacted. Lower growth rates occur when the Medicaid eligible population is stable or declining.
The following chart depicts the total expenses and total program revenues of the State’s governmental functions. This format identifies the
extent to which each governmental function is self-financing through fees and intergovernmental aid or draws from the general revenues
of the State.
Expenses - Governmental Activities
For the Fiscal Year Ended June 30, 2015
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
$15
$16
$17
$18
$19
$20
General
government
Primary and
secondary
education
Higher education Health and
human services
Economic
development
Environment and
natural
resources
Public safety,
corrections, and
regulation
Transportation Agriculture Interest on long-term
debt
Expenses
Program Revenues (excluding Capital
Grants)
Billions
Business-type Activities. Business-type activities reflect an overall increase in net position of $1.69 billion or 114.4%, primarily because
of the financial results of the Unemployment Compensation Fund. The net position increase of $1.51 billion in the Unemployment
Compensation Fund is explained by the drop in the State’s unemployment rate and the implementation of Session Law 2013-2. The net
position increase of $59.47 million for the N.C. Turnpike Authority is due primarily to transfers in from the Highway Trust Fund. The net
position increase of $97.29 million in the EPA Revolving Loan Fund is due to the recognition of federal capitalization grants. The N.C.
State Lottery Fund has no net position since its net profits are distributed to the State’s governmental activities, as required by statute. A
more detailed discussion of the State’s business-type enterprise activities is provided in the following section (see Enterprise Funds).
34
State of North Carolina June 30, 2015
Governmental
Funds
FINANCIAL ANALYSIS OF THE STATE’S FUNDS
The State uses fund accounting to ensure and demonstrate compliance with finance-related legal
requirements.
The focus of the State’s governmental funds is to provide information on near-term inflows, outflows,
and balances of spendable resources. At June 30, 2015, the State’s governmental funds reported combined
fund balances of $5.84 billion, an increase of 37.28% from the prior fiscal year-end (as restated). Of this
amount, $688.17 million is classified as unassigned fund balance in the General Fund (available for
spending at the State’s discretion). The remainder of fund balance is either nonspendable, restricted,
committed, or assigned to indicate that it is 1) not in spendable form (e.g., inventories), 2) restricted for
particular purposes by external sources, 3) committed for particular purposes by the N.C. General
Assembly, or 4) assigned for particular purposes by the Office of State Budget and Management. The
substantial increase in combined fund balances is explained primarily by unspent debt proceeds reported
in both the Highway Fund and other governmental funds ($559 million) and the fund balance increase in
the General Fund (see below).
The major governmental funds are discussed individually below.
General Fund
The General Fund is the chief operating fund of the State. The fund balance of the General Fund increased
$954.72 million (or 61.44%) to $2.51 billion at June 30, 2015. A significant decrease in individual income
tax refunds, due to tax law changes, is the main contributor to the fund balance increase. The 2013 Session
of the General Assembly enacted the Tax Simplification and Reduction Act (Session Law 2013-360),
which created a flat personal income tax, reduced personal and corporate income tax rates, and increased
sales tax revenues through an expanded base.
Individual income tax revenues increased 6.73% to $11.29 billion. The significant decrease in tax refunds
explains this increase (Note: income tax revenues are net of estimated refunds and uncollectible amounts).
Tax law changes required all employees receiving wages in North Carolina to adjust the amount withheld
by their employer based on a new calculation model for wages earned beginning January 1, 2014. The
reduction in individual income tax refunds is due to a combination of the elimination of many deductions
and tax credits as well as taxpayers not adjusting their withholding amounts for the 2014 tax year to reflect
the altered withholding tables due to the tax reform. The result was more taxpayers owed taxes for the
2014 tax year than in previous tax years. Effective January 1, 2014, the State individual income tax rates
changed from a multi-tiered bracket system with tax rates of 6%, 7%, and 7.75% to a flat rate of 5.8% for
all individual income tax taxpayers in North Carolina. Effective January 1, 2015, the State individual
income tax rate decreased to 5.75%.
Sales and use tax revenues increased 17.48% to $6.86 billion due to an improved economy and tax law
changes that broadened the sales and use tax base. The improvements in the economy over the last year,
as evidenced by the growing number of jobs in the state, have increased the disposable incomes of
consumers. Corporate income tax revenues, which are highly volatile over the business cycle, decreased
4.58% to $1.27 billion. Tax law changes reduced the corporate income tax rate from 6% to 5% for tax
years beginning in 2015.
One of the major budget drivers for the General Fund, historically, has been the Medicaid program.
Medicaid enrollment increased 6% to 1.84 million individuals (or 18.3% of North Carolina’s population).
State appropriation expenditures for Medicaid increased 4.52% to $3.56 billion. Medicaid ended the fiscal
year without a budget shortfall. Prior to the fiscal year 2014-15, Medicaid experienced shortfalls of nearly
$1 billion over a three-year period. N.C. Tracks, the replacement system for the Medicaid Management
Information System, went live on July 1, 2013. N.C. Tracks is the first multi-payer system in the country
and the largest information technology project in North Carolina history. In April 2015, the system was
certified by the Centers for Medicare and Medicaid Services’.
35
State of North Carolina June 30, 2015
General Fund Budget Variances
The original General Fund budget, including state appropriations and appropriations supported by
departmental receipts, serves as a starting point or plan for the Governor to execute the General Fund
budget pursuant to the powers granted by the Constitution and State Budget Act. At the state level in
North Carolina, it is not unusual for the budget to change during the fiscal year in relation to budget
adjustments made to accommodate departmental receipts. The General Fund budget supported by state
appropriation is a subset of the General Fund financial schedule presented in the CAFR as required
supplementary information. The current CAFR schedule reflects all spending required to support the
State’s General Fund activities and the funding to support those activities, including state tax and non-tax
revenues, federal revenues, student tuition, and other fees, licenses, and fines. Under current state budget
management practice, particularly related to departmental federal receipts, primary emphasis is placed on
comparisons of the final authorized budget and actual spending.
At the state level, budgetary cuts related to state appropriations are implemented by decreasing allowable
actual expenditures, as opposed to decreasing the state appropriation through a formal legislative process.
The Governor and state agencies maintain legal authority to spend the dollars originally appropriated to
them; however, in recent years the actual spending has been limited by the collection of tax and non-tax
revenue. In extremely rare cases, the General Assembly has held special sessions to formally amend the
authorized and certified state appropriation budget.
The portion of the original budget comprising departmental receipts is not intended to be the sole
controlling point to manage the State’s General Fund budget. The final budget includes amendments for
departmental receipts collected during the fiscal year as allowed by law. General Fund departmental
receipts are typically authorized for expenditure within the activity that generated the receipt.
Historically, final estimated receipts have varied significantly from the original estimate at the beginning
of the fiscal year. State agencies by law must spend departmental receipts prior to spending tax and nontax
supported appropriations. If departmental receipts are higher than expected, appropriated dollars may go
unspent and be re-appropriated in a subsequent fiscal year.
Variances – Original and Final Budget
In general, the variances between original and final budget are attributable to the timing and length of the
budget preparation process and the budgeting of federal funds for the fiscal year. The original budget for
fiscal year 2014-15 was prepared approximately 18 months prior to the final budget existing on June 30,
2015. The final budget reflects all budget revisions made throughout the fiscal year to adjust for known
facts as well as supplemental adjustments approved in the 2014 Session of the General Assembly.
Consequently, when the original budget is compared to the final budget, it would be expected that
significant variances can occur.
Additional factors leading to variances between the original and final budget in fiscal year 2014-15
include the following:
1) Awarding of new unanticipated federal grants and/or the awarding of unanticipated increased or
decreased amounts in long-standing federally supported programs. This also led to the necessity of
budgeting unanticipated required state match.
2) Statewide encumbrance carry-forward budgeted amounts from fiscal year 2013-14 totaled $282.17
million.
3) Allocation of statewide reserves to agencies and universities for the purposes of retirement and
hospitalization formula adjustments, severance, salary adjustments, contingency and emergency,
information technology related programs, and various other budgeted statewide reserves.
4) Receipt and budgeting of over-realized receipts, prior year earned revenues, and unanticipated
donations and grants.
Variances - Final Budget and Actual Results
Actual total revenue collected (both tax and non-tax) was 2.1% above budgeted revenue amounts in fiscal
year 2014-15. This result occurred due to greater than anticipated individual income and corporate income
collections. As corporate taxable profits accelerated and write-offs on losses from the recession dropped,
corporate income tax collections surged over 20% above forecast expectations. For individual income
taxes, the forecast did not fully anticipate the timing of significant State tax law changes enacted during
36
State of North Carolina June 30, 2015
fiscal year 2013-14, resulting in a shortfall in fiscal year 2013-14 and a surplus in fiscal year 2014-15.
Sales and use tax collections, which comprise nearly 30% of total general fund revenue collections,
finished on target in fiscal year 2014-15.
Departmental federal funds actually received by agencies were less than the final authorized budgeted
federal fund revenues. A variance between the budget and actual federal funds occurs because actual
federal fund receipts are reflective of the actual expenditures. Therefore, if qualifying federal costs are
not incurred by an agency, the actual receipt of federal funds could be significantly less than the budget.
Highway Fund
The Highway Fund dates back to 1921, when the General Assembly first imposed the gasoline tax. It
accounts for most of the activities of the North Carolina Department of Transportation (NCDOT),
including the maintenance and construction of the State’s primary and secondary road systems, the
Division of Motor Vehicles, the State Highway Patrol, transit, rail and ferry system. The primary revenue
sources of the Highway Fund are federal funds, three-fourths of gasoline taxes, vehicle registration fees,
and driver’s license fees.
The fund balance of the Highway Fund increased from $221.57 million at June 30, 2014 (as restated) to
$367.09 million at June 30, 2015, an increase of 65.68%. The fund balance increase is attributable, in
part, to the issuance of $264.93 million in grant anticipation revenue vehicle bonds (GARVEE’s) in May
2015. This innovative financing tool was used to accelerate the funding of transportation improvement
projects across the State by leveraging future federal transportation revenues. At June 30, 2015, $193.89
million of the GARVEE proceeds were unspent.
Total revenues decreased 4.42% to $3.4 billion, mostly due to a decrease in federal funds. Total
expenditures were $3.29 billion, a decrease of 5.67%. The Federal Highway and Transportation Funding
Act of 2015 allocated federal apportionments in smaller increments spread out throughout the year, some
of which were not received until the fiscal year 2016. As a result, transportation expenditures and federal
revenues decreased from the previous year.
Population growth is placing an increasing demand on the State’s transportation system. North Carolina’s
population grew from 8.53 million in 2004 to 9.94 million in 2014, an increase of 16.56%. According to
the 2014 Maintenance and Operations Performance Analysis Report prepared by the N.C. Division of
Highways, over a 10-year period (2004 to 2014), paved lane miles grew by 6.6% while bridge deck area
grew by approximately 24%. During this same 10-year period, vehicle miles traveled increased by 11%.
While the recent recession slowed the growth in vehicle miles traveled, current rates indicate a return to
pre-recession levels. This increase places a heavier burden on the existing infrastructure and accentuates
the need for additional capacity, safety, and maintenance funding to address the deterioration in service
created by the increase in traffic. Furthermore, many of the State’s highways were built as farm-to-market
roads and were not designed to handle the heavy traffic volumes of today, and other highways such as
the interstate highway system, which is approaching its 60th anniversary, are nearing the end of their
functional life.
Transportation is fundamental in continuing North Carolina’s prosperity and quality of life as the state’s
population continues to grow. To address the growing demand on the transportation system, increased
cost of supplies, and declining funding, NCDOT continues to seek innovative solutions to meet the
growing stress on the transportation system. In response to declining motor fuels tax and the decreasing
purchasing power of the Highway Fund, Session Law 2009-108 repealed the cap on the motor fuels tax
and set the variable portion of the tax at 12.4 cents per gallon or 7% of the average wholesale price
whichever is greater, thus setting a floor of 29.9 cents per gallon. This remained in place through June
30, 2011. Subsequent legislation reinstated and continued the cap on the motor fuels tax at a rate of 37.5
cents per gallon until April 30, 2015. Session Law 2015-2 revised the motor fuel tax formula. It sets the
tax rate at 36 cents per gallon until December 31, 2015, 35 cents until July 1, 2016 and 34 cents until
December 31, 2017. Beginning January 2018, the motor fuel tax computation will include factors for
population change and the consumer price index.
37
State of North Carolina June 30, 2015
Enterprise
Funds
Effective beginning in fiscal year 2016, Session Law 2015-241 revised the motor fuels tax distribution
formula, directing 71% to the Highway Fund and 29% to the Highway Trust Fund. However, the law also
increased license, registration and other fees attributable to the Highway Fund. The law also eliminates a
transfer to the General Fund for the State Highway Patrol thereby increasing funding for maintenance,
system preservation and the bridge program.
Highway Trust Fund
Legislation creating the Highway Trust Fund was passed by the General Assembly in 1989. It was
established to provide a dedicated funding mechanism to meet specific highway construction needs in
North Carolina. Additionally, the Highway Trust Fund provides supplemental allocations for secondary
road construction and pays the debt service on general obligation bonds issued for highway purposes.
The principal revenue sources of the Highway Trust Fund are highway use taxes, one-fourth of gasoline
taxes, and various title and registration fees. The enabling legislation also specifies that a designated
amount will be transferred each year to the General Fund. The legislation was amended in 2008 to also
require annual transfers to the N.C. Turnpike Authority to pay debt service or financing expenses for
specified toll road construction projects (see Note 10(B) to the financial statements). The budget
legislation for fiscal years 2015 and 2014 reduced the designated transfer amount to the General Fund to
$0. This did not change for fiscal years 2016 and 2017 under current legislation.
The fund balance of the Highway Trust Fund increased from $871.43 million at June 30, 2014 (as
restated) to $1.13 billion at June 30, 2015, an increase of 29.45%. The fund balance increase was primarily
due to an increase in the highway use tax. Gasoline consumption also rose slightly from the previous year
contributing to the overall increase. Total revenues increased 5.56% to $1.25 billion, primarily due to
growth in the highway use tax. Continued increases in vehicle sales, especially in the new vehicle
segment, led to the increase. Total transportation expenditures were $835.52 million, an increase of
12.21%. The full implementation of the Strategic Prioritization Funding plan accounted for this increase.
Since passage of the Highway Trust Fund in 1989, the NCDOT has paved over 13,000 miles of unpaved
secondary roads, leaving only 4,357 miles of secondary roads to be paved. In view of the fact that the
paved secondary road system has not kept up with the demands of increased urbanization and traffic, the
2006 Session of the General Assembly approved changes in the General Statutes that govern the use of
secondary road construction funds. Beginning with fiscal year 2010-11, secondary road allocations to the
counties are based on the total number of secondary road miles in that county in proportion to the total
state maintained secondary road mileage. Projects slated after July 1, 2015 will be prioritized on a
statewide basis instead of a county-wide basis.
Session Law 2013-183 amends the Highway Trust Fund allocation of resources creating the Strategic
Prioritization Funding Plan. Fully implemented as of July 1, 2015, it eliminates individually legislated
projects and implements a new way for NCDOT to fund and prioritize necessary infrastructure
improvements while utilizing existing revenue sources more efficiently. Effective beginning fiscal year
2016, Session Law 2015-241 revised the motor fuels tax distribution formula, directing 71% to the
Highway Fund and 29% to the Highway Trust Fund. The law also increased the minimum highway use
tax and certain motor vehicle fees in order to increase funding to the Strategic Prioritization Program.
The State’s enterprise funds or business-type activities provide the same type of information found in the
government-wide financial statements, but in more detail. The major enterprise funds are discussed
individually below.
Unemployment Compensation Fund
The Unemployment Compensation Fund (Trust Fund) reported net position of positive $1.14 billion at
June 30, 2015 compared to negative $370.52 million at June 30, 2014. The improvement in net position
is explained by 1) the drop in the State’s unemployment rate from 6.4% in June 2014 to 5.8% in June
2015, 2) an additional increase in the Federal Unemployment Tax Act (FUTA) tax, and 3) the
implementation of Session Law 2013-2 in the prior fiscal year. The main impact of this law in the current
fiscal year was the decrease to expenses due to the reduction in the maximum weekly benefit amount and
the maximum duration of unemployment benefits. The Trust Fund’s operating margin (operating
38
State of North Carolina June 30, 2015
revenues less operating expenses) increased 19.21% to $1.21 billion this year. Employer unemployment
contributions decreased 4.83% to $1.54 billion in 2015 due to a one-time 1% contribution rate paid by
employers (per Session Law 2013-2) that was in effect for 2014 but not 2015. Unemployment benefit
expenses, both State and Federal, decreased 46.42% from $632.91 million in 2014 to $339.14 million in
fiscal year 2015, due to a reduction in the number of new claimants and the effects of Session Law 2013-
2 (described above).
In fiscal year 2014-15, nonoperating revenues increased 30.43% to $305.75 million, due to FUTA tax
received in excess of outstanding debt. The excess FUTA tax does not need to be paid back to the federal
government and can only be used to pay benefits.
Since February 2009, the State has borrowed from the U.S. Treasury to ensure the uninterrupted payment
of State unemployment benefits. The State paid off the federal unemployment debt on April 30, 2015. At
June 30, 2014, the balance of this debt was $980.99 million. For the tax year 2014, the FUTA tax increased
by an additional 0.3% for a total increase of 1.2% because the State had an outstanding loan as of
November 10, 2014. The funds generated from this federal tax increase go directly towards paying down
the loan (i.e., Federal unemployment account advances). The additional federal taxes paid by the State’s
employers this fiscal year, which were used to reduce the loan balance, was $253.45 million (classified
as gain on extinguishment of debt). A 1.5% FUTA tax increase will not be in effect for the next calendar
year since the debt was paid off prior to November 10, 2015.
A 20% surcharge on State unemployment contributions, which has been in effect since January 1, 2005
as required by statute, remained in effect during the current fiscal year. The surcharge is deposited into
the Unemployment Insurance Reserve Fund and one of the allowable uses is to pay the interest on the
borrowing. The surcharge is still in effect because the balance in the Trust Fund has not reached the
trigger “off” level. The surcharge will end in January 2016.
N.C. State Lottery Fund
The N.C. Education Lottery (NCEL) first began selling game tickets in 2006. As required by the enabling
legislation, net revenues of the NCEL are transferred four times a year to the General Fund. The NCEL
transferred $526.43 million to the General Fund in 2015 to support educational programs for the State.
The amount transferred in 2014 was $503.14 million. At year end, the net position of the NCEL was zero.
The NCEL has no changes in the net position from year to year.
For fiscal year 2014-15, net ticket sales increased 7.23% from the previous fiscal year to $1.97 billion.
Significant financial highlights include the following: awarded $1 million or more to an NCEL player for
the 227th time; and released 50 new instant scratch-off games into the marketplace generating gross instant
ticket sales of $1.29 billion.
The NCEL’s 2015-16 budget provides for a projected $528.9 million transfer to the General Fund,
representing a 1.71% increase from the previous year’s budget. As established in legislation, lottery funds
are to be distributed for educational purposes as follows:
1. 58.6% for noninstructional support personnel.
2. 14.8% to support reduction of class size in early grades and to support pre-kindergarten programs for
at-risk four-year-olds who would otherwise not be served in high quality settings.
3. 18.9% for public school construction.
4. 7.8% to the State Education Assistance Authority to fund college and university scholarships.
39
State of North Carolina June 30, 2015
N.C. Turnpike Authority
The North Carolina Turnpike Authority (NCTA) was created in 2002 by the General Assembly in
response to concerns about rapid growth, heavy congestion and dwindling resources. It is authorized to
study, plan, develop, construct, operate and maintain up to nine turnpike projects.
Major accomplishments for the NCTA include the following:
 The Triangle Expressway System, the State’s first modern toll road, is approximately 18.8 miles of
new highway construction. The project was constructed and opened in three phases. The third and
final phase opened to toll traffic on January 2, 2013. The Triangle Expressway project was delivered
on schedule and under budget. Total operating revenues increased 24.21% to $30.71 million
primarily due to the increase in toll revenues. A possible southwest extension to the Triangle
Expressway is in the study phase, and would extend the Expressway to I-40 in southern Wake
County.
 The NCTA has completed the financing for the Monroe Connector System, a 19.7-mile toll road in
Mecklenburg and Union counties. However, construction has been delayed due to litigation
challenging the project’s environmental documentation. Construction has resumed and will continue
despite the notice of appeal.
Net position for NCTA increased 21.51% to $335.96 million in 2015. Operating loss (before capital
contributions and transfers) improved 66.94% due to increases in toll revenue but still remains negative
at $3.1 million. However, net position continues to increase due to continued transfers from the Highway
Trust Fund for gap funding of debt service and funds for the Federal Highway Administration (FHWA)
match; and capital grants (funds received from the FHWA and the Highway Trust Fund for their
participation in the initial construction of toll highways and in preliminary studies to determine the
feasibility of a toll facility).
Funding for administrative expenses is advanced as needed from the Highway Trust Fund to be repaid
from NCTA revenue collections. Interest began to accrue on the advance on January 1, 2014 (one year
after the NCTA began collecting tolls on the completed turnpike project).
The high cost of building, operating and maintaining a major highway facility is typically more than the
revenue a new road can generate through tolls. The gap between what tolling can pay for and the cost of
the road requires additional support from the State, known as gap funding. Annual transfers from the
Highway Trust Fund to the NCTA are used to pay debt service and fund required reserves on bonds issued
to finance turnpike projects. For fiscal year 2015, the N.C. General Assembly appropriated $49 million
for the Triangle Expressway and Monroe Connector projects.
EPA Revolving Loan Fund
The Environmental Protection Agency (EPA) Revolving Loan Fund (Loan Fund) is comprised of the
Clean Water State Revolving Fund and the Drinking Water State Revolving Fund established by General
Statute 159G-22 and receives federal and state funds. This Loan Fund was established to provide loans
and grants as allowed under federal laws for wastewater projects and public water systems to meet the
water infrastructure needs of the State.
The net position of the Loan Fund increased 6.94% to $1.5 billion in 2015. This increase in net position
is due to the Loan Fund continuing to focus on streamlining its processes (requiring municipalities to
follow specified timelines that resulted in more infrastructure projects being completed during the year)
and prioritizing the spending of funds from the U.S. EPA (federal) capitalization grant for these projects
(as opposed to funds from other sources). The amount of expenses paid (loaned) out during the year for
existing infrastructure projects exceeded the total amount of principal repaid on the existing loans which
resulted in an increase to notes receivable. Operating income was $16.47 million (operating revenues less
operating expenses), and net non-operating revenues were $67.68 million. Net non-operating revenues
consisted primarily of noncapital grants (federal capitalization grants). Noncapital grants decreased
3.87% to $85.48 million. Noncapital grants decreased primarily because the U.S. EPA requested that
states focus on the first-in first-out methodology of loaning and drawing down federal funds for new
infrastructure projects.
40
State of North Carolina June 30, 2015
Capital
Assets
CAPITAL ASSET AND DEBT ADMINISTRATION
As of June 30, 2015, the State’s investment in capital assets was $47.09 billion, an increase of 3.27%
from the previous fiscal year-end (see table below).
Capital Assets as of June 30
(net of depreciation, dollars in thousands)
2014 2014 2014
2015 (as restated) 2015 (as restated) 2015 (as restated)
Land and permanent easements............ $ 16,634,469 $ 16,221,268 $ 185,894 $ 160,571 $ 16,820,363 $ 16,381,839
Buildings............................................... 2,757,591 2,792,625 63,288 54,232 2,820,879 2,846,857
Machinery and equipment .................... 604,889 589,323 6,833 8,160 611,722 597,483
Infrast ructure:
State highway system....................... 22,850,001 21,897,786 — — 22,850,001 21,897,786
NC toll road system.......................... — — 762,446 778,576 762,446 778,576
Other infrast ructure.......................... 160,093 163,062 4,322 4,645 164,415 167,707
Computer software............................... 307,400 288,109 987 12 308,387 288,121
Art , literature, and other art ifacts......... 116,223 104,296 390 209 116,613 104,505
Const ruct ion in progress....................... 2,049,311 2,040,771 263,281 206,910 2,312,592 2,247,681
Computer software in development ...... 324,390 290,801 — — 324,390 290,801
Total............................................ $ 45,804,367 $ 44,388,041 $ 1,287,441 $ 1,213,315 $ 47,091,808 $ 45,601,356
Total percent change between
fiscal years 2014 and 2015 3.19 % 6.11 % 3.27 %
Governmental
Activi ties
Business-type
Activi ties Total
The largest component of capital assets is the state highway system. North Carolina has a 79,584 mile
highway system, making it the second largest state-maintained highway system in the nation. The major
capital asset activity during the current fiscal year included the following:
 The N.C. Department of Transportation reported year-end construction in progress of $1.58 billion
(including land improvements) for state highway projects. Additionally, the N.C. Turnpike Authority
(business-type activity) reported year-end construction in progress of $263 million for the Monroe
Connector System, a toll project in eastern Mecklenburg County.
 The Department of Health and Human Services (DHHS) is constructing new psychiatric hospitals to
replace its aging state-operated psychiatric hospitals. It began construction of a new Cherry Hospital
in 2010 and a new Broughton Hospital in 2012. At year-end, construction in progress for Cherry
Hospital and Broughton Hospital totaled $226 million. The new hospitals are being financed by
special indebtedness bonds.
 DHHS is also replacing major legacy IT systems. NC Tracks, the new multi-payer Medicaid
Management Information System, became operational on July 1, 2013 (total development cost of $237
million). This system facilitates provider enrollment, consolidates claims processing activities, and
supports healthcare administration. NC FAST, the new system for managing and administering social
services benefits, will improve the way DHHS and the 100 county departments of social services
conduct business. At year-end, computer software in development for NC FAST totaled $301 million.
As further detailed in Note 21(E) to the financial statements, the State has commitments of $3.997 billion
for the construction of highway infrastructure ($3.97 billion for governmental activities and $27 million
for business-type activities), which are expected to be financed by gasoline tax collections, motor vehicle
fees, toll collections, federal funds, and debt proceeds. Other commitments of $57 million for the
construction of new mental health facilities are expected to be financed by special indebtedness bonds.
More detailed information about the State’s capital assets is presented in Note 5 to the financial
statements.
41
State of North Carolina June 30, 2015
Long-term
Debt
At year-end, the State had total long-term debt outstanding (bonds, special indebtedness, and notes
payable) of $7.91 billion, a decrease of 1.21% from the previous fiscal year-end (see table below).
Outstanding Debt as of June 30
Bonds, Special Indebtedness, and Notes Payable
(dollars in thousands)
2014 2014 2014
2015 (as restated) 2015 (as restated) 2015 (as restated)
General obligat ion bonds....................... $ 3,469,220 $ 3,607,100 $ — $ — $ 3,469,220 $ 3,607,100
Special Indebtedness:
Lease-purchase revenue bonds.......... 2,000 4,125 — — 2,000 4,125
Cert ificates of part icipat ion............. 151,745 247,615 — — 151,745 247,615
Limited obligat ion bonds.................. 2,095,550 2,132,085 — — 2,095,550 2,132,085
GARVEE bonds.................................... 598,165 395,275 145,535 145,535 743,700 540,810
Revenue bonds...................................... — — 1,019,588 1,039,308 1,019,588 1,039,308
Notes payable....................................... 34,095 39,738 390,818 392,592 424,913 432,330
Total ............................................... $ 6,350,775 $ 6,425,938 $ 1,555,941 $ 1,577,435 $ 7,906,716 $ 8,003,373
Total percent change between
fiscal years 2014 and 2015
Total
(1.21)%
Business-type
Activi ties
(1.17)%
Governmental
Activi ties
(1.36)%
During the 2014-15 fiscal year, the State issued $231.36 million in general obligation bonds and $264.93
million in grant anticipation revenue vehicle (GARVEE) bonds for its governmental activities. The
general obligation bonds were issued pursuant to the Two-Thirds Bonds Act of 2014 (see next page) and
will provide funds for the acquisition, construction, and various capital improvements for the State
(governmental activities) and the University of North Carolina System (component unit). The proceeds
of the GARVEE bonds (authorized by Session Law 2005-403) will be used to accelerate funding of
various transportation projects identified in the current State Transportation Improvement Plan.
Additionally, the State refinanced $309.2 million of its existing certificates of participation and limited
obligation bonds reported in governmental activities to take advantage of lower interest rates. The
refinancing is expected to reduce future debt service payments by approximately $21 million.
The State issues two types of tax-supported debt: general obligation (GO) bonds and various types of
“special indebtedness” (i.e., debt not subject to a vote of the people). GO bonds are secured by the full
faith, credit, and taxing power of the State and require approval by a majority of voters. The payments on
special indebtedness are subject to appropriation by the General Assembly and may also be secured by a
lien on facilities or equipment. The General Statutes (Chapter 142, Article 9) prohibit the issuance of
special indebtedness except for projects specifically authorized by the General Assembly. There are
different forms of special indebtedness, also known as appropriation-supported debt. One form,
“financing contract indebtedness” includes lease-purchase revenue bonds and certificates of participation.
The other form is limited obligation bonds, which may be issued by the State directly rather than through
a conduit issuer. The use of alternative financing methods provides financing flexibility to the State and
permits the State to take advantage of changing financial and economic environments. The GARVEE
bonds are a revenue bond-type debt instrument where the debt service is to be paid solely from federal
transportation revenues.
The State’s total long-term debt (bonds, special indebtedness, and notes payable) reported in
governmental activities has increased significantly, rising from $3.48 billion in 2002 to $6.35 billion in
2015, in part due to large issuances of non-GO debt (special indebtedness) for higher education capital
projects. Prior to 2003, the State only issued general obligation debt. The N.C. Turnpike Authority
(Authority), a business-type activity, had its first debt issuance in 2010. The Authority’s long-term debt
has increased from $691.56 million in 2010 to $1.56 billion in 2015.
42
State of North Carolina June 30, 2015
The following is a summary of significant debt authorizations.
Connect NC Bond Act of 2015
The 2015-16 Session of the General Assembly authorized, subject to a vote of the qualified voters of the
State, the issuance of $2 billion dollars of general obligation bonds of the State to be secured by a pledge
of the faith and credit and taxing power of the State. The proceeds of the bonds will be used to fund the
construction and furnishing of new facilities and the renovation and rehabilitation of existing facilities
for the University of North Carolina System ($980 million), the North Carolina Community Colleges
($350 million), water and sewer loans systems ($309.5 million), the State’s National Guard ($70 million),
the Department of Agriculture and Consumer Services ($94 million), State parks and attractions ($100
million), and other purposes ($96.5 million). The question of the issuance of the bonds will be submitted
to the voters at the time of the 2016 presidential primary on March 15, 2016.
Two-Thirds Bonds Act of 2014
The 2013-14 Session of the General Assembly authorized the issuance of up to $306.9 million of general
obligation bonds without requiring voter approval pursuant to authority in the State’s constitution that
permits the issuance of such bonds to the extent of two-thirds of the amount of general obligation debt
that had been retired during the previous biennium. The proceeds of the bonds are to be used to fund
projects that had previously been authorized to use the proceeds of special indebtedness and various other
state projects. The State issued $231.36 million of two-thirds bonds in fiscal year 2014-15, which was
less than authorized. This was due both to previously realized savings on projects that have been
completed and the use of bond premium in prior years to provide project financing.
Special Indebtedness
The 2009-10 Session of the General Assembly reduced special indebtedness authorizations for various
projects by over $115 million to generate additional debt capacity and increased authorizations for
guaranteed energy savings contracts by $400 million. The 2008-09 Session of the General Assembly
authorized the issuance of $734.03 million of special indebtedness as follows: $512.22 million for higher
education projects, $109.09 million for correctional facilities, $50 million for acquiring state park lands
and conservation areas, and $62.72 million for other state projects. The 2007-08 Session of the General
Assembly authorized the issuance of special indebtedness as follows: $481.14 million for higher
education projects and $188.01 million for other purposes. The 2006-07 Session of the General Assembly
authorized the issuance of $672.1 million of special indebtedness as follows: $429.3 for psychiatric
hospitals and a public health laboratory for the Department of Health and Human Services, $132.2 million
for medical and mental health centers for the Department of Correction, and $110.6 million for other state
and university projects.
Repair and Renovation Authorization
The 2002-03 Session of the General Assembly authorized the issuance of $300 million of special
indebtedness to finance the repair and renovation of state facilities and related infrastructure that are
supported by the State’s General Fund. Of the $300 million, approximately $157 million was allocated
to the University of North Carolina (UNC) System. Each of the 16 constituent institutions of the UNC
System received a portion of the proceeds for repairs and renovations. The remaining $143 million of the
proceeds was used to make repairs and renovations to various state facilities. The State has issued all of
the authorized repair and renovation debt.
Higher Education Authorization
The 1999-00 Session of the General Assembly authorized the issuance of $3.1 billion of higher education
improvement bonds, which were subsequently approved by the voters of the State. The $3.1 billion bond
authorization represents the largest debt authorization in the State’s history. The proceeds of these general
obligation bonds were used solely to construct new buildings and to renovate and modernize existing
buildings on the State's 58 community college and 16 University of North Carolina campuses. These
improvements were needed to meet enrollment demands and to ensure that the State’s college and
university buildings meet modern code requirements and are equipped to prepare graduates for 21st
century jobs. The bond legislation passed by the General Assembly specifies the amount of bond funding
that flows to each community college and university campus. The State has issued all of the authorized
higher education bonds.
43
State of North Carolina June 30, 2015
Clean Water and Natural Gas Authorization
The 1997-98 Session of the General Assembly authorized the issuance of $1 billion of clean water and
natural gas general obligation bonds, which were subsequently approved by the voters of the State. The
proceeds of these bonds were used to provide grants and loans to local governments for clean water
projects ($800 million) and to provide grants and loans for construction of natural gas facilities to
facilitate the expansion of natural gas service to unserved areas of the State ($200 million). The State has
issued all of the authorized clean water and natural gas bonds.
Highway Bond Authorization
The 1995-96 Session of the General Assembly authorized the issuance of $950 million of highway general
obligation bonds, which were subsequently approved by the voters of the State. The bond proceeds were
allocated to pay capital costs for urban loops ($500 million), highways in the Intrastate System ($300
million), and for paving unpaved roads of the secondary highway system ($150 million). The State has
issued all of the authorized highway bonds.
Credit Ratings
Credit ratings are the rating agencies’ assessment of a governmental entity’s ability and willingness to
repay debt on a timely basis. Credit ratings are an important factor in the public credit markets and can
influence interest rates a borrower must pay.
The State’s general obligation bond credit ratings are as follows:
State of North Carolina
General Obligation Bond Credit Ratings
Rating Agency Rating Outlook
Fitch Ratings AAA Stable
Moody’s Investors Service Aaa Stable
Standard & Poor’s Rating Services AAA Stable
These ratings are the highest attainable from all three rating agencies. During the 2014-15 fiscal year, the
State issued general obligation bonds, GARVEE bonds, and limited obligation refunding bonds. In
connection with the general obligation bonds, Standard & Poor’s, Moody’s Investors Service, and Fitch
Ratings, the top three rating agencies, all affirmed the triple-A bond rating for the State. A triple-A credit
rating means that North Carolina has followed well-defined financial management policies and has
demonstrated strong debt management practices. The ratings assigned on the limited obligation refunding
bonds were one level below triple-A. The rating agencies recognized the State’s historically conservative
budgeting, financial management, and debt issuance practices. North Carolina remains one of only ten
states with a triple-A rating from all three rating agencies.
Special indebtedness is not subject to a vote of the people and its repayment is based on the State’s annual
debt service appropriation. For these reasons, special indebtedness is rated lower than the State’s general
obligation bonds and typically carries a higher interest rate.
Limitations on Debt
The Constitution of North Carolina (Article 5, Section 3) imposes limitations upon the increase of certain
state debt. It restricts the General Assembly from contracting debts secured by a pledge of the faith and
credit of the State, unless approved by a majority of the qualified voters of the State, except for the
following purposes:
1. To fund or refund a valid existing debt;
2. To supply an unforeseen deficiency in the revenue;
3. To borrow in anticipation of the collection of taxes due and payable within the current fiscal year to
an amount not exceeding 50 percent of such taxes;
4.

North Carolina
Comprehensive Annual Financial Report
For the fi scal year ended June 30, 2015
Th e North Carolina Maritime Museum at Southport (top) tells the story of the Cape Fear
region and its people. Th e Museum shares tales of pirates and pillage, blockade running,
riverfront archaeology, and other nautical adventures.
Th e North Carolina Maritime Museum in Beaufort (middle) refl ects coastal life and
interprets lighthouses and lifesaving stations, the seafood industry, motorboats, and more.
Th e Museum is the repository for artifacts from Blackbeard’s wrecked fl agship, Queen
Anne’s Revenge.
Th e Graveyard of the Atlantic Museum in Hatteras (bottom) is named in honor of thousands
of shipwrecks that sank off North Carolina’s coast. Th e Museum preserves and interprets
the maritime heritage and shipwrecks of the North Carolina Outer Banks.
One historic coast. Th ree unique museums.
Photos courtesy of NC Department of Natural and Cultural Resources
NORTH
CAROLINA
COMPREHENSIVE
ANNUAL
FINANCIAL
REPORT
FOR THE FISCAL YEAR
ENDED JUNE 30, 2015
PAT MCCRORY
GOVERNOR
LINDA COMBS
STATE CONTROLLER
Prepared by Statewide Accounting staff
Office of the State Controller
http://www.osc.nc.gov
State of North Carolina
This report was prepared by the
Statewide Accounting staff of the North Carolina Office of the State Controller.
Anne Godwin, CPA
Deputy State Controller
Statewide Accounting
anne.godwin@osc.nc.gov
Elizabeth Colcord, MAFM
Accounting and Financial Reporting
Manager
elizabeth.colcord@osc.nc.gov
Amber Young
Central Compliance
Manager
amber.young@osc.nc.gov
Statewide Accounting staff
Ann Anderson Cathy Johnson Randy Smith, CPA
Joy Darden, MSA Laura Klem Prabhavathi Vijayaraghavan, CPA
Debbie Dryer, CPA Clayton Murphy, CPA Megan Wallace, CPA, MACIS
Martha Hunt, CPA Virginia Sisson
Special appreciation is given to the chief fiscal officers and the dedicated accounting personnel throughout the State.
Their efforts to contribute accurate and timely financial data for their agencies, universities, community colleges, and
institutions made this report possible.
2
State of North Carolina
PATMCCRORY
Governor of North Carolina
REPRESENTATIVE TIMMOORE
Speaker of the House
North Carolina General Assembly
SENATOR PHILIP BERGER
President Pro Tempore
North Carolina General Assembly
LINDA COMBS
State Controller
3
TABLE OF CONTENTS
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2015
INTRODUCTORY SECTION Page
Letter of Transmittal.................................................................................................................................................................................................................. 8
Certificate of Achievement for Excellence in Financial Reporting............................................................................................................................................ 19
Organization of North Carolina State Government, including principal state officials.............................................................................................................. 20
FINANCIAL SECTION
Report of Independent Auditor.................................................................................................................................................................................................. 24
Management's Discussion and Analysis.................................................................................................................................................................................... 28
Basic Financial Statements
Government-wide Financial Statements
Statement of Net Position — Exhibit A-1................................................................................................................................................................................. 52
Statement of Activities — Exhibit A-2...................................................................................................................................................................................... 54
Fund Financial Statements
Balance Sheet—Governmental Funds — Exhibit B-1............................................................................................................................................................... 58
Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Position — Exhibit B-1a........................................................................... 59
Statement of Revenues, Expenditures and Changes in Fund Balances—Governmental Funds — Exhibit B-2......................................................................... 60
Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances
of Governmental Funds to the Statement of Activities — Exhibit B-2a............................................................................................................................. 61
Statement of Net Position—Proprietary Funds — Exhibit B-3................................................................................................................................................. 62
Statement of Revenues, Expenses and Changes in Fund Net Position—Proprietary Funds — Exhibit B-4............................................................................... 66
Statement of Cash Flows—Proprietary Funds — Exhibit B-5.................................................................................................................................................. 68
Statement of Fiduciary Net Position—Fiduciary Funds — Exhibit B-6.................................................................................................................................... 72
Statement of Changes in Fiduciary Net Position—Fiduciary Funds — Exhibit B-7.................................................................................................................. 73
Notes to the Financial Statements.............................................................................................................................................................................................. 74
Required Supplementary Information
Schedule of Changes in the Net Pension Liability and Related Ratios—Cost-Sharing, Multiple-Employer, Defined Benefit Pension Plans............................ 188
Schedule of Changes in the Net Pension Liability and Related Ratios—Single-Employer, Defined Benefit Pension Plans...................................................... 190
Schedule of Employer and Nonemployer Contributions—Cost-Sharing, Multiple-Employer, Defined Benefit Pension Plans................................................. 192
Schedule of Employer and Nonemployer Contributions—Single-Employer, Defined Benefit Pension Plans............................................................................ 194
Schedule of Investment Returns—All Defined Benefit Pension Trust Funds............................................................................................................................ 196
Notes to Required Supplementary Information—Schedule of Employer Contributions............................................................................................................. 197
Schedule of the Primary Government's and Component Units' Proportionate Share of the Net Pension Liability..................................................................... 200
Schedule of the Primary Government's (Nonemployer) Proportionate Share of the Net Pension Liability................................................................................. 201
Schedule of the Primary Government and Component Units Contributions—Cost-Sharing, Multiple-Employer,
Defined Benefit Pension Plans.......................................................................................................................................................................................... 202
Schedule of Funding Progress—Other Postemployment Benefits............................................................................................................................................. 204
Schedule of Employer Contributions—Other Postemployment Benefits.................................................................................................................................. 205
Schedule of Revenues, Expenditures and Changes in Fund Balance—Budget and Actual
—(Budgetary Basis—Non-GAAP) General Fund............................................................................................................................................................ 208
Notes to Required Supplementary Information—Budgetary Reporting.................................................................................................................................... 209
Combining Fund Statements and Schedules
Nonmajor Governmental Funds
Combining Balance Sheet—Nonmajor Governmental Funds — Exhibit C-1............................................................................................................................ 216
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Governmental Funds — Exhibit C-2..................................... 217
Combining Balance Sheet—Nonmajor Special Revenue Funds — Exhibit C-3........................................................................................................................ 220
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Special Revenue Funds — Exhibit C-4................................. 222
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances
—Budget and Actual (Budgetary Basis—Non-GAAP) Nonmajor Special Revenue Funds — Exhibit C-5.................................................................... 224
Combining Balance Sheet—Nonmajor Capital Projects Funds — Exhibit C-6......................................................................................................................... 228
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Capital Projects Funds — Exhibit C-7................................... 229
Combining Balance Sheet—Nonmajor Permanent Funds — Exhibit C-8................................................................................................................................ 232
Combining Statement of Revenues, Expenditures and Changes in Fund Balances—Nonmajor Permanent Funds — Exhibit C-9........................................... 233
Combining Schedule of Revenues, Expenditures and Changes in Fund Balances
—Budget and Actual (Budgetary Basis—Non-GAAP) Nonmajor Permanent Funds — Exhibit C-10.......................................................................... 234
State of North Carolina
4
Comprehensive Annual Financial Report
For the Fiscal Year Ended June 30, 2015
Proprietary Funds
Nonmajor Enterprise Funds
Combining Statement of Net Position—Nonmajor Enterprise Funds — Exhibit D-1................................................................................................................ 240
Combining Statement of Revenues, Expenses and Changes in Fund Net Position—Nonmajor Enterprise Funds — Exhibit D-2............................................ 242
Combining Statement of Cash Flows—Nonmajor Enterprise Funds — Exhibit D-3................................................................................................................. 244
Internal Service Funds
Combining Statement of Net Position—Internal Service Funds — Exhibit E-1........................................................................................................................ 248
Combining Statement of Revenues, Expenses and Changes in Fund Net Position—Internal Service Funds — Exhibit E-2..................................................... 250
Combining Statement of Cash Flows—Internal Service Funds — Exhibit E-3.......................................................................................................................... 252
Fiduciary Funds
Combining Statement of Fiduciary Net Position—Investment Trust Funds — Exhibit F-1....................................................................................................... 258
Combining Statement of Changes in Fiduciary Net Position—Investment Trust Funds — Exhibit F-2............................................................................... 259
Combining Statement of Fiduciary Net Position—Private Purpose Trust Funds — Exhibit F-3............................................................................................... 262
Combining Statement of Changes in Fiduciary Net Position—Private Purpose Trust Funds — Exhibit F-4............................................................................ 263
Combining Statement of Changes in Assets and Liabilities—Agency Funds — Exhibit F-5.................................................................................................... 266
Component Units - Discretely Presented
Combining Statement of Net Position—Nonmajor Component Units — Exhibit G-1............................................................................................................... 272
Combining Statement of Activities—Nonmajor Component Units — Exhibit G-2.................................................................................................................. 274
Statement of Cash Flows—Major Component Unit — Exhibit G-3......................................................................................................................................... 276
STATISTICAL SECTION
Index to Statistical Section........................................................................................................................................................................................................ 279
Net Position by Component — Table 1..................................................................................................................................................................................... 280
Changes in Net Position — Table 2.......................................................................................................................................................................................... 282
Fund Balances of Governmental Funds — Table 3................................................................................................................................................................... 286
Changes in Fund Balances of Governmental Funds — Table 4................................................................................................................................................ 288
Schedule of Revenues by Source — General Fund — Table 5 ................................................................................................................................................. 290
Personal Income by Industry — Table 6.................................................................................................................................................................................... 292
Individual Income Tax Filers and Liability & Individual Income Tax Rates — Table 7............................................................................................................ 294
Taxable Sales by Business Group — Table 8............................................................................................................................................................................ 296
Sales Tax Revenue Payers by Business Group — Table 9........................................................................................................................................................ 298
Ratios of Outstanding Debt by Type — Table 10...................................................................................................................................................................... 302
Ratios of General Bonded and Similar Debt Outstanding — Table 11..................................................................................................................................... 304
Schedule of General Obligation Bonds Payable — Table 12.................................................................................................................................................... 306
Schedule of Special Indebtedness Debt — Table 13................................................................................................................................................................. 310
Pledged Revenue Coverage — Table 14.................................................................................................................................................................................... 312
Schedule of Demographic Data — Table 15............................................................................................................................................................................. 316
Principal Employers — Table 16............................................................................................................................................................................................... 318
Teachers and State Employees by Function — Table 17........................................................................................................................................................... 320
Operating Indicators by Function — Table 18.......................................................................................................................................................................... 322
Capital Asset Statistics by Function — Table 19...................................................................................................................................................................... 326
Required Supplementary Information—Ten-Year Claims Development Information—Public School Insurance Fund — Table 20......................................... 330
State of North Carolina
5
State of North Carolina
THIS PAGE INTENTIONALLY LEFT BLANK.
6
INTRODUCTORY
SECTION
State of North Carolina
Office of the State Controller
LINDA COMBS
STATE CONTROLLER
MAILING ADDRESS: 1410 Mail Service Center, Raleigh, North Carolina 27699-1410
STREET ADDRESS: 3512 Bush Street, Raleigh, North Carolina 27609
Phone (919) 707-0500 ~ Fax (919) 981-5444
http://www.osc.nc.gov ~~ An EEO/AA/AWD Employer
December 3, 2015
The Honorable Pat McCrory, Governor
Members of the North Carolina General Assembly
Citizens of North Carolina
In compliance with G.S. 143B-426.40H, it is our pleasure to provide you with the State of North Carolina’s 2015
Comprehensive Annual Financial Report (CAFR). This report has been prepared by the Office of the State Controller.
Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclo-sures,
rests with the state government and this office. To the best of our knowledge and belief, this financial report is complete
and reliable in all material respects. We believe all disclosures necessary to enable you to gain an understanding of the State's
financial activities have been included.
Although the State budgets and manages its financial affairs on the cash basis of accounting, G.S. 143B-426.40H requires
the Office of the State Controller to prepare a Comprehensive Annual Financial Report (CAFR) in accordance with generally
accepted accounting principles (GAAP) in the United States of America. Except for schedules clearly labeled otherwise, this
CAFR has been prepared in accordance with GAAP.
North Carolina’s State government management is responsible for establishing and maintaining an internal control structure
designed to ensure that the assets of the State are protected from loss, theft or misuse and to ensure that adequate accounting
data are compiled to allow for the preparation of financial statements in conformity with generally accepted accounting
principles. The internal control structure is designed to provide reasonable, but not absolute, assurance that these objectives
are met. The concept of reasonable assurance recognizes that: (1) the cost of a control should not exceed the benefits likely
to be derived, and (2) the valuation of costs and benefits requires estimates and judgments by management.
In compliance with North Carolina’s General Statutes, an annual financial audit of the State financial reporting entity is
completed each year by the North Carolina Office of the State Auditor. The Auditor's examination was conducted in
accordance with auditing standards generally accepted in the United States of America and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and
the Auditor’s opinion has been included in this report. In addition, the State coordinates the Single Audit effort of all federal
funds through the State Auditor.
This letter of transmittal is intended to complement the management discussion and analysis (MD&A) and should be read in
conjunction with it. The MD&A provides an overview of the State’s financial activities addressing both governmental and
business-type activities reported in the government-wide financial statements. In addition, the MD&A focuses on the State’s
major funds: the General Fund, the Highway Fund, the Highway Trust Fund, the Unemployment Compensation Fund, the
EPA Revolving Loan Fund, the N.C. Turnpike Authority, and the N.C. State Lottery Fund. The MD&A can be found
immediately following the independent auditor’s report.
State of North Carolina
Profile of the State of North Carolina
North Carolina became the 12th state of the union in 1789. North Carolina is located on the Atlantic coast
and is bordered by Georgia, South Carolina, Tennessee and Virginia. The State has a land area of
approximately 50,000 square miles. The State’s estimated population is 10.04 million, making it the 9th
most populated state in the nation. Ninety-two percent of the State’s population lives in metropolitan
areas. The North Carolina coastline is 301 miles, the greatest distance east to west is 543 miles, and the
greatest distance north to south is 188 miles. The State’s elevation rises from sea level on the eastern
coastline to 6,684 feet at Mount Mitchell in the Appalachian mountain range on our western border.
There are 79,584 miles of roads, with Interstate 40 crossing North Carolina east to west, and Interstates
77, 85 and 95 crossing the State north to south. North Carolina’s capital and central state government
administration is located in Raleigh, in the central piedmont. Charlotte, Raleigh, Greensboro, Durham,
and Winston-Salem are North Carolina’s largest cities and there are 100 counties.
North Carolina continues to grow and to be an attractive place to live, to work, and to raise a family. The
State has been consistently ranked as one of the nation’s “Top Business Climates” according to Site
Selection magazine. It has taken the top honor 11 times in the last 15 years in the annual selection by the
magazine. In addition, North Carolina is ranked among the best business climates in the nation by CNBC,
Forbes and Chief Executive.
North Carolina’s state government consists of an executive branch, a legislative branch, and a judicial
branch. The executive branch is headed by the Governor. The Governor, Lieutenant Governor, and eight
other statewide elected officers form the Council of State. The State Constitution provides that, “A
Secretary of State, an Auditor, a Treasurer, a Superintendent of Public Instruction, an Attorney General,
a Commissioner of Agriculture, a Commissioner of Labor, and a Commissioner of Insurance shall be
elected by the qualified voters of the State….” All administrative departments, agencies, and offices of
the State and their respective functions, powers, and duties shall be allocated by law among and within
not more than 25 principal administrative departments.
The legislative power of the State is vested in the General Assembly, which consists of a Senate and a
House of Representatives. The Senate is composed of 50 Senators, elected on a biennial basis. The
House of Representatives is composed of 120 Representatives, elected on a biennial basis.
The Courts of the Judicial Branch are split into three divisions, the Appellate Division, the Superior Court
Division, and the District Court Division. Judges are elected on a non-partisan basis.
The State of North Carolina entity as reported in the CAFR includes all fund types of the departments,
agencies, boards, commissions and authorities governed and legally controlled by the State's executive,
legislative and judicial branches. In addition, the reporting entity includes legally separate component
units for which the State is financially accountable. The component units are discretely presented in the
government-wide financial statements. The State's discretely presented major component units are the
University of North Carolina System, the State's community colleges, and the State Health Plan. The
criteria for inclusion in the reporting entity and its presentation are defined by the Governmental
Accounting Standards Board (GASB) in its GASB Codification Section 2100. These criteria are
described in Note 1 of the accompanying financial statements.
The State and its component units provide a broad range of services to its citizens, including primary and
secondary education; higher education; health and human services; economic development; environment
and natural resources; public safety, corrections, and regulation; transportation; agriculture; and general
government services. The costs of these services are reflected in detail and in summary in this report.
The Old North
State,
The Tar Heel
State
Government
State Reporting
Entity and
Its Services
9
State of North Carolina
In addition to internal controls discussed previously, the State maintains budgetary controls. The
objective of these budgetary controls is to ensure compliance with legal provisions embodied in the annual
appropriated budget approved by the General Assembly. Activities of the General Fund, departmental
special revenue funds, and permanent funds are included in the annual appropriated budget. The Highway
Fund and the Highway Trust Fund, the State's major special revenue funds, are primarily budgeted on a
multi-year basis. Capital projects are funded and planned in accordance with the time it will take to
complete the project. The level of budgetary control (that is, the level at which expenditures cannot
legally exceed the appropriated amount) is exercised at both the departmental and university level, with
allotment control exercised by the State Controller, and on the program line-item levels requiring certain
approvals by the Director of the Budget. Legislative authorization of departmental expenditures appears
in the State Appropriations Bill. The budget approved by the General Assembly is the legal expenditure
authority; however, the Office of State Budget and Management may approve executive changes to the
legal budget as allowed by law. These changes result in the final budget presented in the required
supplementary information.
Economic Condition
During fiscal year 2014-15, the US economy continued to grow at a steady, moderate pace. North
Carolina’s economic conditions reflected the same steady improvements experienced by the nation’s
economy. Key industries in the State experienced strong growth during the fiscal year, especially the
Professional and Business Services sector, Construction, and Durable-Goods Manufacturing.
Employment improved, although wage growth fell below expectations. The State’s unemployment rate
dropped 0.4 percentage points during the year, falling from 6.2% to 5.8%. The State added 97,900 payroll
jobs, a significant gain over the 73,600 added the previous year. Wage and salary income grew by 4.2%,
which was improved over last year’s 3% but weaker than long-run expectations of 5% to 6%. For the
second half of 2015, economic conditions are expected to contribute to steady employment growth
increasing upward pressure on wage growth. In 2016, wages are forecast to approach growth rates closer
to the long-range average of 5.1%.
The very slow-pace of the recovery during the first five years after the Great Recession has finally ended
yet strong, expansionary economic growth struggles to gain traction. The national Gross Domestic
Product (GDP, a broad measure of economic activity) finished the last quarter of the fiscal year very
strong with 3.7% growth offsetting the previous quarter’s dismal 0.6% growth. Yet ongoing global
economic instability will continue to be a drag on the US’s ability to boost economic activity beyond the
moderate, mid-two percent annual growth rate.
Budgetary
Control
Overview
National
Economic
Outlook
United States Economic Indicators
FY2013-14 FY2014-15 FY2015-16 FY2016-17
Actual Projected Projected Projected
Economic growth (GDP)* 2.2% 2.6% 2.8% 2.7%
Personal Income 4.2% 4.2% 5.2% 6.1%
Corporate Pre-Tax Profits 3.6% 6.4% 6.2% 2.9%
Retails Sales 4.5% 4.9% 5.5% 5.6%
Unemployment Rate 6.8% 5.7% 5.0% 4.7%
Consumer Price Index 2.1% 0.1% 1.5% 2.2%
30-yr Fixed Mortgage Interest Rate 3.5% 4.3% 4.3% 5.7%
*Adjusted for inflation
10
State of North Carolina
The national economy has been hampered by an unequal recovery and an unstable global economy. The
aftermath of the global financial crisis continued to affect economies worldwide. This was especially true
in the Eurozone where economic growth and financial stability proved difficult for some of its members.
Uprisings in the Middle East added to this instability. Further complicating economic conditions was the
decline in oil prices, which are the result of both weaker global demand and higher output levels. In the
US, capital markets continued to perform well, but those improvements have not translated into
widespread improvements in the whole economy. Over the past two years, business investments, hiring,
and industrial production have periodically established some momentum offering hope that an
expansionary phase in the economy was on the horizon. Unfortunately, the momentum has gained little
traction and leaves us with a continuation of weaker overall growth in the economy than one might expect
six years after a recession’s end. The nation’s outlook for the remainder of 2015 and 2016 is for a
continuation of this modest, below-average economic growth. This means the pace of economic activity
is not expected to either significantly accelerate or decelerate over the next eighteen to twenty-four
months.
Economic indicators conveyed the subpar pace of growth during the fiscal year. The national economy
grew at a pace of 2.6%. This was slightly ahead of the pace of the previous fiscal year. The economy
appeared poised to move into a stronger expansionary phase with 2.9% annualized growth in the third
quarter of 2014. By the next quarter, rather than accelerating, growth had slowed to 2.5%. The next two
fiscal years’ economic activity is expected to maintain the current pace, growing by 2.8% and 2.7%,
respectively.
Improving economic activity during the year meant the dismal pace of employment growth would start
to improve. The nation’s average unemployment rate dropped from 6.8% to 5.7%. Previous drops in the
unemployment rate had mostly been attributed to a shrinking labor force rather than growing payrolls.
This fiscal year stronger employment growth was the main driver of the lower rate. Nonetheless, slack in
the labor market persisted and was reflected by weaker-than-expected wage growth. During the fiscal
year, total personal income in the nation rose by only 4.2%. Projected advancements in the economy
suggest that personal income growth will increase with 5.2% growth expected in fiscal year 2015-16.
Business profitability saw a major rebound after the recession, but since then profits have plateaued.
Many businesses coming out of the recession were bolstered by a global economic recovery spurred
primarily by emerging markets such as India and China. In the past year, export demand has weakened
considerably as global economic weakness intensified. National demand has not been able to pick up the
slack, thus expectations for profit growth were downgraded. Profits grew by 6.4% during the fiscal year.
Growth in the following years reflects ongoing weakness in the global economy plus an uptick in
domestic wages, thus lowering overall profits. For the upcoming fiscal years, profits are forecast to grow
6.2% and 2.9%, respectively.
Retail sales are a good indicator of an economy’s health. This key measure improved in fiscal year 2014-
15, although the pace of growth did not meet most forecasters’ expectations. As economic conditions
continue to stabilize and the employment picture improves, consumers are more willing to increase
spending. Household debt has increased the past two years reflecting more confident consumers. The
biggest drag has been stagnant wage growth. Continued improvements in employment and a stronger
wage growth will help boost retail sales over the next several years.
To summarize, the economy has settled into a subpar growth pattern in the 2.5% range. Gains, while
modest, have improved consumer spending. As the labor market tightens, wages are expected to improve
and should provide further support for increases in consumer spending. Global weakness, including the
decline in China’s economy, will keep the national economy from accelerating into a full expansionary
mode.
11
State of North Carolina
North Carolina Economic Indicators
FY2013-14 FY2014-15 FY2015-16 FY2016-17
Actual Projected Projected Projected
State Gross Product* 2.1% 2.4% 2.9% 3.2%
Personal Income 3.2% 4.5% 5.2% 5.3%
Wages & Salaries 3.0% 4.2% 5.1% 5.1%
Retail Sales 5.1% 5.6% 6.1% 6.5%
Unemployment Rate 6.2% 5.8% 5.8% 5.5%
Employment (Nonagricultural) 2.2% 2.4% 2.1% 2.2%
Population 1.0% 1.0% 1.2% 1.5%
Housing Starts -2.3% 12.4% 14.0% 18.0%
*Adjusted for Inflation
For North Carolina, as with the nation, the economy has strengthened, but the pace of growth has been
somewhat weaker than was expected at the start of the fiscal year. Economic indicators show that the
economy did pick up pace during the fiscal year. Stronger economic conditions overall resulted in the
State adding 97,900 jobs, a significant increase over the prior year. Most industries experienced solid
growth, but employment in non-durable manufacturing and government declined. The solid employment
gains did not translate to similar gains in wage and salary income, which increased by 4.2%.
Projections of the State’s key economic indicators reflect how the State’s recovery is expected to unfold.
Gross State Product, a broad measure of the State’s economic activity, is expected to show solid growth
in the next two fiscal years. Total personal income growth slowed in fiscal year 2013-14, but is expected
to progress over the next two years. For the fiscal year, total personal income rose 4.5%, well behind the
strong growth of 6% to 7% experienced in the years prior to the recession. Wage and salary income, a
component of total personal income, grew at 4.2% for the fiscal year. That was an improvement over the
dismal 3.2% growth the previous year and wages should continue to improve with advances in the labor
market. A return to long-term growth levels in wage and salary income is forecast for 2016.
The recovery in North Carolina gained strength and traction, yet never reached expansionary levels during
fiscal year 2014-15. Nonetheless, the increase in economic activity was enough that the State saw solid
improvement in employment. The unemployment rate at the end of the fiscal year fell to 5.8%, from 6.2%
at the start of the fiscal year. With a brighter economic outlook and a stronger labor market, retail sales
advanced at a rate of 5.6%. Going forward, retail sales are expected to make up ground from years of
slow growth by growing at a pace one to two percentage points above the long-term average growth rate
of 5.0%.
As the State’s economy continues to progress, employment prospects are expected to stabilize over the
next two fiscal years. Total Non-Agricultural employment growth is projected at 2.1% and 2.2%,
respectively. That would be slightly below this year’s growth, but would continue to add 90,000 to 95,000
jobs in each of the next two years. The construction industry had struggled to regain some of the jobs lost
during and after the recession. During fiscal year 2014-15, employment grew in this industry by 6.8%
(12,100 jobs). Despite the gains, there are now 61,000 fewer construction jobs than when the recession
began in December 2007, a drop of 24.3%. For fiscal year 2014-15, in addition to Construction,
Professional and Business Services, Construction, Durable-Goods Manufacturing; and Leisure and
Hospitality Services outpaced the overall growth in the State’s employment. Even as the State experiences
strong job growth the unemployment rate is expected to remain in the mid-five percent range as
discouraged workers who left the workforce re-enter given the better job prospects. The rate is projected
to average 5.8% in fiscal year 2015-16, and 5.5% in fiscal year 2016-17.
The housing recession and the subsequent adjustments in the real estate market have taken a long time to
unwind. A strong rebound in housing starts (new construction) was underway in 2012, mostly from pent-up
demand from the long housing downturn. In fiscal year 2013-14, housing starts stalled and declined
by 2.3%. They took off again in 2014 with yearly growth of 12.4%. Housing starts can provide valuable
North Carolina
Economic
Outlook
12
State of North Carolina
insight into construction jobs and ripple effects in other industries such as household furnishing and
appliance manufacturing. Additionally, in a healthy economy contractors will be more likely to take risks
starting new housing developments. Housing starts are expected to average just below 60,000 per year
during the biennium with growth of 14% and 18%, respectively. This would represent nearly double the
number of housing starts during the recession, but still would be 35,000 less annually when compared to
the peak year of 2006.
To summarize, the State’s economic conditions experienced steady improvement during most of the fiscal
year. Employment growth was the strongest since the 2007-2009 recession ended. The State’s economy
should track closely with the national economy the rest of 2015 and into 2016. By 2017, the State’s
economy is projected to grow at a pace faster than the national economy. The anticipated strengthening
of the economy should increase consumer demand and solidify employment growth. These projected
gains in employment will help to reduce the remaining slack in the labor market, and should place upward
pressure on wages. Rising employment and wage gains will greatly improve the health of the economy
as we move into 2016.
— Economic analysis prepared by Barry Boardman, Ph.D., Chief Economist
Fiscal Research Division, North Carolina General Assembly
October 5, 2015
13
State of North Carolina
Long-term Financial Planning and Major Initiatives
The North Carolina Retirement Systems administer four major retirement systems and several smaller
systems and pension funds. The largest of the major retirement systems is the Teachers’ and State
Employees’ Retirement System (TSERS).
The economic crisis of 2008 has had long-term effects that continue to require increased contributions
from the State in order to maintain the strength of TSERS. Funding the Retirement Systems is a shared
responsibility among employees, employers, and the Department of State Treasurer through investment
earnings. Effective July 1, 2014, the State established an employer contribution rate of 9.15% of
compensation for TSERS which remained effective for the fiscal year beginning July 1, 2015. This
contribution rate exceeds the calculated Actuarially Required Contribution (ARC) rate of 8.69%. Setting
the contribution rate at or above the ARC is a significant action taken by the General Assembly to ensure
long-term fiscal health of the pension plan.
The 2014 General Assembly enacted a contribution-based cap on pension benefits for members retiring
from TSERS and the Local Government Employers’ Retirement System. The benefit cap serves to control
the practice of “pension spiking,” whereby a member's compensation significantly increases during or
immediately preceding the four-year period over which compensation is averaged in order to calculate
the member’s retirement benefit. The cap approximately corresponds with the annuitized equivalent of
the total accumulated balance of employee contributions multiplied by a factor selected every five years
by the Boards of Trustees.
The 2015 General Assembly established statutory procedures for agencies entering or exiting TSERS and
Local Government Employees’ Retirement System (LGERS) to mitigate the financial impact of
unanticipated agency closure or legislative removal. Agencies electing to enter the Retirement Systems
must undergo a financial review process after the first year of participation. Board of Trustee members
were given authority to grant or deny the entering agency permanent admission based on the financial
review. The new provisions also provide for an agency to pay a withdrawal liability to offset costs due
to unforeseen actuarial effects of an agency’s removal.
Additional legislation from the 2015 session also gives authority to the State Treasurer to intercept State
appropriations allocated to agencies and public school employers to recover outstanding debts due to the
Retirement Systems.
The Department of State Treasurer (DST) completed a three year project to upgrade the state’s banking
system in July 2015. The upgraded system provides additional functionality and efficiencies. The
Department of State Treasurer and the Office of the State Controller are working jointly on the second
phase of the project to include replacement of the state’s aged cash management system which will
integrate with the new banking system. The second phase is anticipated to be completed in 2016.
Leaders of this state saw the need to establish a nonprofit organization to work with the public and private
sector entities of North Carolina to focus on growth in North Carolina. The Economic Development
Partnership of North Carolina, Inc. was created in 2013 and began operations in October 2014, after
completion of its fundraising requirements. The organization is tasked with marketing the attributes
North Carolina has to offer, to recruit new employers to the state, to market North Carolina’s exports, and
to attract tourists to spend their time and resources in the state.
North
Carolina
Pension
Funds
Banking
Operations
Economic
Development
Partnership of
North Carolina, Inc.
14
State of North Carolina
Relevant Financial Policies
General Statute 143C-4-2 established the Savings Reserve Account as a reserve in the General Fund. The
State Controller “shall reserve to the Savings Reserve Account one-fourth of any unreserved fund balance,
as determined on a cash basis, remaining in the General Fund at the end of each fiscal year.”
The Savings Reserve Account is a component of the unappropriated General Fund balance and serves as
the State’s rainy day fund. Funds in the Savings Reserve Account shall be available for expenditure only
upon an act of appropriation by the General Assembly. The General Assembly recognizes the need to
establish and maintain sufficient reserves to address unanticipated events and circumstances such as
natural disasters, economic downturns, threats to public safety, health, and welfare, and other
emergencies. It is a goal of the State to accumulate and maintain a balance in the Savings Reserve
Account equal to or greater than 8% of the prior year’s General Fund appropriation budget.
At the beginning of fiscal year 2014-15, the balance of the Savings Reserve Account was $651.6 million.
Session Law 2015-241 authorized the State Controller to make a transfer of $200 million from the General
Fund’s unreserved fund balance at June 30, 2015 to the Savings Reserve Account. The balance at the
end of the fiscal year 2014-2015 was $851.6 million. This represents 4.13% of the prior year’s General
Fund appropriation budget.
General Statute 143C-4-3 established the Repairs and Renovations Reserve Account (R&R Account) as
a reserve in the General Fund. The State Controller “shall reserve to the Repairs and Renovations Reserve
Account one-fourth of any unreserved fund balance, as determined on a cash basis, remaining in the
General Fund at the end of each fiscal year.”
The funds in the R&R Account shall be used only for the repair and renovation of State facilities and
related infrastructure that are supported from the General Fund. Funds reserved to the R&R Account
shall be available for expenditure only upon an act of appropriation by the General Assembly. At the
beginning of fiscal year 2014-15, the balance of the R&R Account was $11.6 million. Session Law 2015-
241 authorized the State Controller to make a transfer of $400 million from the General Fund’s unreserved
fund balance to the R&R Account. This created a year-end balance of $411.6 million.
The 2004 General Assembly passed legislation creating the Debt Affordability Advisory Committee. The
Committee is charged, on an annual basis, with advising the Governor and the General Assembly of the
estimated debt capacity of the State for the upcoming 10 fiscal years. The Committee is also required to
recommend other debt management policies consistent with sound management of the State’s debt.
The Committee is responsible for preparing an annual debt affordability study and establishing guidelines
for evaluating the State’s debt burden. The Committee is required to report its findings and
recommendations to the Governor, the General Assembly, and the Fiscal Research Division of the
General Assembly by February 1 of each year.
The Committee has adopted the ratio of debt service as a percentage of revenues as the controlling metric
that determines the State’s debt capacity. The 2015 study indicated over the ten year planning horizon
and after adjusting revenue for the tax rate changes passed during the last legislative session, the State’s
revenue picture is positive overall, reflecting a continued economic recovery. The study found that the
State’s General Fund has debt capacity of $700 million in each of the next 10 years. The ratio of debt
service to revenues will peak at 3.66%, notably below the 4% target.
The following target and ceiling guidelines are the basis for calculating the recommended amount of
General Fund-supported debt the State could prudently authorize and issue over the next 10 years:
Savings Reserve
Account
Repairs and
Renovations
Reserve
Account
Debt Affordability
Guidelines
15
State of North Carolina
1. Net tax-supported debt service as a percentage of general tax revenues should be targeted at no
more than 4% and not exceed 4.75%;
2. Net tax-supported debt as a percentage of personal income should be targeted at no more than
2.5% and not exceed 3.0%; and
3. The amount of debt to be retired over the next ten years should be targeted at no less than 55%
and not decline below 50%.
The Committee recommended continuing the State’s historically conservative centralized debt
management practices. The Committee strongly encouraged the General Assembly to adopt language
restricting the ability of State entities to enter into financial arrangements that incur debt or debt-like
obligations. The Committee strongly opposed the proposal for the State to provide credit support for debt
issues of component unit universities and other State entities whose source of repayment is project
revenues.
Lastly, the Committee cautioned that care should be taken as the State enacts laws that permit the
procurement and financing of assets through the use of public private partnerships (P3s). While P3s may
appear to provide a new source of funds in a time of diminished revenues and debt capacity, such
agreements often contain financing arrangements with the private entity that could result in that entity
incurring debt or obligations secured, directly or indirectly by governmental payments or charges to the
citizens. In the Committee’s view, the prioritization of capital projects and issuance of obligations that
increase the State’s debt burden should remain the prerogative of the General Assembly.
The 2015 General Assembly enacting legislation requiring each constitution institution of the University
of North Carolina to conduct an annual debt affordability study. This will require the universities to
establish guidelines for maintaining prudent debt levels and a system for prioritizing university capital
needs, when the needs exceed the new debt capacity. The Board of Governors shall advise the Governor
and General Assembly annually on the estimated debt capacity for the upcoming five fiscal years.
The 2013 General Assembly passed significant tax reform legislation for the State of North Carolina.
The tax reform legislation provided for a corporate income tax rate reduction for the 2016 tax year
provided the state reached a target of $20.2 billion in General Fund tax revenues. General fund tax
revenues during the 2014-2015 fiscal year exceeded the target and the corporate income tax rate for the
2016 tax year will be reduced. Subsequent legislation by the 2015 General Assembly further reduces the
rate for any subsequent tax years provided that the General Fund revenues collected during the preceding
fiscal year exceeds $20.975 billion.
Awards and Acknowledgements
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a
Certificate of Achievement for Excellence in Financial Reporting to the State of North Carolina for its
Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, 2014. This was the
21st consecutive year (1994 to 2014) the State has received the prestigious national award recognizing
conformance with the highest standards for preparation of state and local government financial reports.
A Certificate of Achievement is valid for a period of one year only. We believe our current report
continues to conform to the Certificate of Achievement program requirements, and we are submitting it
to the GFOA.
Tax Policy
Certificate of
Achievement
16
State of North Carolina
The North Carolina Teachers’ and State Employees’ Retirement System was awarded the Public Pension
Standards Award for Funding and Administration for the 2014 calendar year in recognition for meeting
professional standards for plan funding and administration as set forth in the Public Pension Standards.
In conclusion, we believe this report provides useful data to all parties using it in evaluating the financial
activity of the State of North Carolina. We in the Office of the State Controller express our gratitude to
all the financial officers throughout the State and to the Office of the State Auditor for their dedicated
efforts in assisting us in the preparation of this report. Any questions concerning the information
contained in this report should be directed to the Office of the State Controller at (919) 707-0500.
Respectfully submitted,
Linda Combs
State Controller
Acknowledgments
17
CERTIFICATE OF ACHIEVEMENT
State of North Carolina
ORGANIZATION OF NORTH CAROLINA STATE GOVERNMENT
INCLUDING PRINCIPAL STATE OFFICIALS
EXECUTIVE BRANCH
Council of State
Governor
Pat McCrory
Lieutenant Governor
Dan Forest*
Secretary of State
Elaine F. Marshall
State Auditor
Beth A. Wood
State Treasurer
Janet Cowell
State Superintendent of
Public Instruction
Dr. June St. Clair
Atkinson
Attorney General
Roy Cooper
Commissioner of
Agriculture
Steven W. Troxler
Commissioner of
Labor
Cherie Berry
Commissioner of
Insurance
Wayne Goodwin
Cabinet Secretaries — Appointed by the Governor
Administration
Bill Daughtridge, Jr.
Public Safety
Frank L. Perry
Cultural Resources
Susan W. Kluttz
Commerce
John E. Skvarla, III
Environment
& Natural Resources
Donald R. van der Vaart
Health and Human
Services
Dr. Aldona Wos
Revenue
Lyons Gray
Transportation
Anthony J. Tata
Appointed by Governor,
confirmed by Legislature
State Controller
Dr. Linda Combs
Dr. R. Scott Ralls
President
Thomas W. Ross
President
Appointed by University
Board of Governors
Appointed by State Board of
Community Colleges
20
State of North Carolina
LEGISLATIVE BRANCH JUDICIAL BRANCH
Component Units
State of North Carolina Web Page
http://www.ncgov.com
North Carolina
Supreme Court
Chief Justice
Mark D. Martin
Associate Justices
Robert H. Edmunds, Jr.
Paul M. Newby
Robin E. Hudson
Barbara Jackson
Cheri Beasley
Sam Ervin, IV
Administrative
Office of the Courts
Judge Marion Warren
Director
University of North
Carolina System
Community Colleges State Education
Assistance Authority
General Assembly
Senate
House of
Representatives
Speaker
Tim Moore
Speaker Pro Tempore
Paul Stam
Majority Leader
Mike Hager
Minority Leader
Larry D. Hall
President Pro Tempore
Philip Berger
Deputy Pres. Pro Tempore
Louis Pate
Majority Leader
Harry Brown
Minority Leader
Dan Blue
*Note:
Article II of the NC Constitution
provides that the Lieutenant
Governor shall serve as
President of the Senate.
The Golden LEAF, Inc. N.C. Housing Finance
Agency
State Health Plan
University of North
Carolina System
Community Colleges State Health Plan
Other Component Units
21
State of North Carolina
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22
FINANCIAL
SECTION
State of North Carolina June 30, 2015
24
State of North Carolina June 30, 2015
25
State of North Carolina June 30, 2015
26
MANAGEMENT’S
DISCUSSION AND
ANALYSIS
State of North Carolina June 30, 2015
Financial
Highlights
MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)
The following is a narrative overview and analysis of the State of North Carolina’s (the State) financial
performance for the fiscal year ended June 30, 2015. Please read it in conjunction with the transmittal letter at
the front of this report and with the State's financial statements, which follow this section.
Government-wide Financial Statements
 The State’s total net position increased by $4.95 billion or 12.05% as a result of this year’s operations. Net
position of governmental activities and business-type activities increased by $3.26 billion (or 8.23%) and
$1.69 billion (or 114.4%), respectively. At year-end, net position of governmental activities and business-type
activities totaled $42.86 billion and $3.17 billion, respectively.
 Component units reported net position of $22.83 billion, an increase of $941.7 million or 4.3% from the
previous year. The majority of the net position is attributable to the University of North Carolina System,
a major component unit.
Fund Financial Statements
 The fund balance of the General Fund increased from $1.55 billion at June 30, 2014 (as restated) to $2.51
billion at June 30, 2015, an increase of 61.44%. A significant decrease in individual income tax refunds,
due to tax law changes, is the main contributor to the fund balance increase. Tax refunds were lower due
to the elimination of many deductions and tax credits and taxpayers not adjusting their withholding
amounts for the 2014 tax year.
 The fund balance of the Highway Fund increased 65.68% to $367.09 million at June 30, 2015. The
increase is attributable, in part, to the issuance of $264.93 million in grant anticipation vehicle (GARVEE)
bonds in May 2015.
 The fund balance of the Highway Trust Fund increased 29.45% to $1.13 billion at June 30, 2015. The
increase is due, in part, to the continued growth in new car sales, which led to an increase in the highway
use tax.
 The Unemployment Compensation Fund reported net position of positive $1.14 billion at June 30, 2015
compared to negative $370.52 million at June 30, 2014. The improvement in net position is attributable to
the drop in the State’s unemployment rate and the implementation of Session Law 2013-2. The State paid
off the federal unemployment debt (amount that was advanced to finance State unemployment benefit
payments) on April 30, 2015.
 Net ticket sales of the N.C. State Lottery Fund (Lottery) increased 7.23% from the previous fiscal year to
$1.97 billion. As required by law, the Lottery transferred $526.43 million to the General Fund to support
educational programs.
 The net position of the N.C. Turnpike Authority (Authority) increased 21.51% to $335.96 million at June
30, 2015. Total operating revenues increased 24.21% to $30.71 million primarily due to the increase in
toll revenues. The Authority receives gap funding of debt service from the Highway Trust Fund.
 The net position of the EPA Revolving Loan Fund increased 6.94% to $1.5 billion.
Capital Assets
 The State’s investment in capital assets (net of accumulated depreciation) was $47.09 billion, an increase
of 3.27% from the previous fiscal year-end.
 Significant year-end construction in progress amounts were for State highway projects ($1.58 billion), a
toll road project ($263 million), new psychiatric hospitals ($226 million), and a new system for managing
and administering social service benefits ($301 million).
Long-term Debt
 The State had total long-term debt outstanding (bonds, special indebtedness, and notes payable) of $7.91
billion, a decrease of 1.21% from the previous fiscal year-end. The State issued $231.36 million in general
obligation bonds and $264.93 million in GARVEE bonds for its governmental activities. Additionally, the
State refinanced $309.2 million of its existing certificates of participation and limited obligation bonds to
take advantage of lower interest rates. The refinancing is expected to reduce future debt service payments
by approximately $21 million.
 In connection with the general obligation bonds, all three rating agencies affirmed the triple-A credit rating
for the State. The rating agencies recognized the State’s historically conservative budgeting, financial
management, and debt issuance practices. North Carolina remains one of only 10 states with a triple-A
rating from all three rating agencies.
28
State of North Carolina June 30, 2015
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is an introduction to the State’s basic financial statements, which comprise three components: 1) government-wide
financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains additional required
supplementary information (Pension and other postemployment benefits trend information and General Fund budgetary schedule) and other
supplementary information (combining financial statements) in addition to the basic financial statements. These components are described
below.
Government-wide Financial Statements
The Statement of Net Position and the Statement of Activities are two financial statements that report information about the State, as a
whole, and about its activities that should help answer this question: Is the State, as a whole, better off or worse off as a result of this year’s
activities? These statements include all non-fiduciary assets, deferred outflows of resources, liabilities, and deferred inflows of resources
using the accrual basis of accounting. The current year’s revenues and expenses are taken into account regardless of when cash is received
or paid. The Statement of Net Position (pages 52 and 53) presents all of the State’s assets, deferred outflows of resources, liabilities, and
deferred inflows of resources, with the sum of these components reported as “net position.” Over time, increases and decreases in net
position measure whether the State’s financial position is improving or deteriorating.
The Statement of Activities (pages 54 and 55) presents information showing how the State’s net position changed during the most recent
fiscal year. All changes in net position are reported as soon as the underlying events giving rise to the change occur, regardless of the timing
of related cash flows. Therefore, revenues and expenses are reported in these statements for some items that will only result in cash flows
in future fiscal periods (e.g. uncollected taxes and earned but unused vacation leave).
In the government-wide financial statements, the State’s activities are divided into three categories:
 Governmental Activities – Most of the State’s basic services are reported under this category. Taxes and intergovernmental revenues
generally fund these services.
 Business-type Activities – The State charges fees to customers to help it cover all or most of the cost of certain services it provides. The
State’s Unemployment Compensation Fund, the EPA Revolving Loan Fund, the N.C. State Lottery Fund, and the N.C. Turnpike
Authority are the predominant business-type activities.
 Discretely Presented Component Units – Component units are legally separate organizations for which the elected officials of the
primary government are financially accountable. A description of the component units and an address for obtaining their separately
issued financial statements can be found beginning on page 76. Discretely presented component units are combined and displayed in a
separate discrete column in the government-wide financial statements to emphasize their legal separateness from the State. In addition,
financial statements for major component units are presented in the notes to the financial statements (pages 172 and 173).
Fund Financial Statements
The fund financial statements provide more detailed information about the State’s most significant funds (i.e., major funds) – not the State
as a whole. A fund is a fiscal and accounting entity with a self-balancing set of accounts that the State uses to keep track of specific sources
of funding and spending for particular purposes. In addition to the major funds, page 216 begins the individual fund data for the nonmajor
funds. The State's funds are divided into three categories (governmental, proprietary, and fiduciary) and they use different accounting
approaches.
Governmental funds – Most of the State's basic services are reported in the governmental funds, which focus on how cash and other
financial assets that can readily be converted to cash flow in and out (i.e., inflows and outflows of spendable resources) and the balances
left at year-end that are available for spending (i.e., balances of spendable resources). Consequently, the governmental fund financial
statements provide a detailed short-term view that helps users determine whether there are more or fewer financial resources that can be
spent in the near future to finance the State's programs. The State prepares the governmental fund financial statements using the modified
accrual basis of accounting and a current financial resources measurement focus. Because this information does not encompass the
additional long-term focus of the government-wide statements, a reconciliation schedule, which follows each of the governmental fund
financial statements, explains the relationships (or differences) between them. Information is presented separately in the governmental fund
financial statements for the General Fund, the Highway Fund, and the Highway Trust Fund, all of which are considered to be major funds.
Data for all other governmental funds are combined into a single aggregated presentation. Individual fund data for each of these nonmajor
governmental funds is provided in the form of combining statements elsewhere in this report.
Proprietary funds – When the State charges customers for the services it provides, whether to outside customers or to agencies within the
State, these services are generally reported in proprietary funds. Proprietary funds (enterprise and internal service) utilize accrual accounting,
which is the same method used by private sector businesses. Enterprise funds are used to report activities for which fees are charged to
external users for goods and services. The Unemployment Compensation Fund, the EPA Revolving Loan Fund, the N.C. State Lottery
Fund, and the N.C. Turnpike Authority are our most significant enterprise funds. Internal service funds are used to report activities that
29
State of North Carolina June 30, 2015
provide goods and services to the State’s other programs and activities on a cost-reimbursement basis, such as the State Property Fire
Insurance Fund, the Motor Fleet Management Fund, Computing Services Fund, and the State Telecommunications Services Fund. Because
the State’s internal service funds predominantly benefit governmental rather than business-type functions, they have been included within
governmental activities in the government-wide financial statements.
Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. Information is
presented separately in the proprietary fund financial statements for the Unemployment Compensation Fund, the EPA Revolving Loan
Fund, the N.C. State Lottery Fund, and the N.C. Turnpike Authority, all of which are considered to be major funds. Conversely, separately
aggregated columns are presented for the nonmajor enterprise funds and the internal service funds. Individual fund data for the nonmajor
enterprise funds and internal service funds is provided in the form of combining statements elsewhere in this report.
Fiduciary funds – Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds
are not reflected in the government-wide financial statements because the resources of those funds are not available to support the State’s
own programs. The accounting used for fiduciary funds is much like that used for proprietary funds. The State's fiduciary activities are
reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. These funds include pension and other
employee benefit trust funds, private-purpose trust funds, investment trust funds, and agency funds.
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund
financial statements. The notes to the financial statements can be found beginning on page 76 of this report.
Required Supplementary Information
Required Supplementary Information (RSI) follows the basic financial statements and notes to the financial statements. The RSI is mandated
by the GASB and includes 1) pension plan and employer trend information related to the net pension liability, employer contributions, and
investment returns, 2) other postemployment benefits trend information related to funding progress and employer contributions, and 3)
General Fund budgetary comparison schedules reconciling the statutory to the generally accepted accounting principles fund balances at
fiscal year-end.
Other Supplementary Information
Other supplementary information includes the introductory section; combining financial statements for nonmajor governmental funds,
nonmajor enterprise funds, internal service funds, fiduciary funds, and nonmajor discretely presented component units; a statement of cash
flows for the State Health Plan, a major component unit, which does not issue separate financial statements; and the statistical section.
30
State of North Carolina June 30, 2015
FINANCIAL ANALYSIS OF THE STATE AS A WHOLE
The State’s overall assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $46.03 billion (total
primary government) at the close of the most recent fiscal year. Over time, increases or decreases in net position may serve as a useful
indicator of whether the financial position of the State is improving or deteriorating. The following table was derived from the government-wide
Statement of Net Position:
Net Position as of June 30, 2015 and 2014
(dollars in thousands)
Total
Percentage
2014 2014 2014 Change
2015 (as restated) 2015 (as restated) 2015 (as restated) 2014-2015
Current and other non-current
assets.................... $ 10,865,267 $ 9,607,068 $ 3,962,905 $ 3,394,803 $ 14,828,172 $ 13,001,871 14.05%
Capital assets, net................. 45,804,367 44,388,041 1,287,441 1,213,315 47,091,808 45,601,356 3.27%
Total assets.......................... 56,669,634 53,995,109 5,250,346 4,608,118 61,919,980 58,603,227 5.66%
Total deferred outflows
of resources..................... 607,444 532,787 4,599 6,180 612,043 538,967 13.56%
Long-term liabilities.............. 8,666,978 9,887,589 1,654,144 2,679,671 10,321,122 12,567,260 (17.87%)
Other liabilities...................... 4,717,689 5,037,685 413,186 458,006 5,130,875 5,495,691 (6.64%)
Total liabilities................... 13,384,667 14,925,274 2,067,330 3,137,677 15,451,997 18,062,951 (14.45%)
Total deferred inflows
of resources..................... 1,030,957 0 21,666 0 1,052,623 — NA
Net position:
Net investment in
capital assets..................... 43,612,584 42,139,297 534,380 442,100 44,146,964 42,581,397 3.68%
Restricted.............................. 1,061,817 861,988 1,256 1,940 1,063,073 863,928 23.05%
Unrestricted.......................... (1,812,947) (3,398,663) 2,630,313 1,032,581 817,366 (2,366,082) 134.55%
Total net position............... $ 42,861,454 $ 39,602,622 $ 3,165,949 $ 1,476,621 $ 46,027,403 $ 41,079,243 12.05%
Governmental Business-type Total Primary
Activities Activities Government
The largest component of the State’s net position ($44.15 billion) reflects its investment in capital assets (land, buildings, machinery and
equipment, state highway system, toll road system, and other capital assets), less related debt still outstanding that was used to acquire or
construct those assets. Restricted net position is the next largest component ($1.06 billion). Net position is restricted when constraints
placed on their use are 1) externally imposed by creditors, grantors, contributors, or laws or regulations of other governments or 2) legally
imposed through constitutional provisions. The remaining portion, unrestricted net position, consists of net position that does not meet the
definition of “restricted” or “net investment in capital assets.”
The government-wide statement of net position for governmental activities reflects a negative $1.81 billion unrestricted net position balance.
The State of North Carolina, like many other state and local governments, issues general obligation debt and special indebtedness and
distributes the proceeds to local governments and component units. The proceeds are used to construct new buildings and renovate and
modernize existing buildings on the State’s community college and university campuses, assist county governments in meeting their public
school building capital needs, and to provide grants and loans to local governments for clean water and natural gas projects. Of the $6.87
billion of bonds and special indebtedness outstanding for governmental activities at June 30, 2015, $4.39 billion is attributable to debt
issued as state aid to component units (universities and community colleges) and local governments. The balance sheets of component unit
and local government recipients reflect ownership of the related constructed capital assets without the burden of recording the debt
obligation. The policy of issuing bonded debt and distributing the cash proceeds to non-primary government (non-state) entities has been
in place for decades. However, by issuing such debt, the State is left to reflect significant liabilities on its statement of net position (reflected
in the unrestricted net position component) without the benefit of recording the capital assets constructed or acquired with the proceeds
from the debt issuances. Additionally, as of June 30, 2015, the State’s governmental activities have significant unfunded liabilities for
compensated absences of $456.7 million, net pension liabilities of $344.96 million, worker’s compensation of $202.16 million, and a court
judgment payable of $737.3 million (see Note 8 to the financial statements). The State of North Carolina implemented GASB Statements
68 and 71 this year (see Note 22 to the financial statements). In 2008, a Superior Court judge ruled that certain civil fines and penalties
should have been remitted to North Carolina public schools and not diverted to other uses. These unfunded liabilities also contribute to the
negative unrestricted net position balance for governmental activities.
31
State of North Carolina June 30, 2015
The State’s overall net position increased $4.95 billion or 12.05% (total primary government) from the prior fiscal year. The net position
of the governmental activities increased $3.26 billion or 8.23% and business-type activities increased $1.69 billion or 114.4%. The
following financial information was derived from the government-wide Statement of Activities:
Changes in Net Position for the Fiscal Years Ended June 30, 2015 and 2014
(dollars in thousands)
Governmental Business-type Total Primary Total
Activities Activities Government Percentage
2014 2014 2014 Change
2015 (as restated) 2015 (as restated) 2015 (as restated) 2014-2015
Revenues
Program revenues
Charges for services...................................... $ 2,304,142 $ 2,202,085 $ 3,726,105 $ 3,670,399 $ 6,030,247 $ 5,872,484 2.69%
Operating grants and contributions.............. 16,152,680 15,261,306 409,351 347,108 16,562,031 15,608,414 6.11%
Capital grants and contributions.................. 942,238 1,260,306 21,251 11,942 963,489 1,272,248 (24.27%)
General revenues
Taxes:
Individual income tax................................ 11,288,542 10,576,575 — — 11,288,542 10,576,575 6.73%
Corporate income tax............................... 1,272,879 1,318,091 — — 1,272,879 1,318,091 (3.43%)
Sales and use tax....................................... 6,869,090 5,839,362 — — 6,869,090 5,839,362 17.63%
Gasoline tax.............................................. 1,945,462 1,907,803 — — 1,945,462 1,907,803 1.97%
Franchise tax............................................. 556,786 888,815 — — 556,786 888,815 (37.36%)
Highway use tax....................................... 653,931 596,801 — — 653,931 596,801 9.57%
Insurance tax............................................. 529,927 476,402 — — 529,927 476,402 11.24%
Beverage tax.............................................. 360,280 342,784 — — 360,280 342,784 5.10%
Tobacco products tax............................... 279,795 273,426 — — 279,795 273,426 2.33%
Other taxes............................................... 288,340 348,938 — — 288,340 348,938 (17.37%)
Tobacco settlement...................................... 137,910 139,169 — — 137,910 139,169 (0.90%)
Unrestricted investment earnings................. 20,139 19,452 — — 20,139 19,452 3.53%
Miscellaneous............................................... 34,167 192,002 4 3 34,171 192,005 (82.20%)
Total revenues............................................ 43,636,308 41,643,317 4,156,711 4,029,452 47,793,019 45,672,769 4.64%
Expenses
General government...................................... 1,159,012 1,080,982 — — 1,159,012 1,080,982 7.22%
Primary and secondary education................ 10,224,967 9,772,994 — — 10,224,967 9,772,994 4.62%
Higher education........................................... 3,859,549 3,901,543 — — 3,859,549 3,901,543 (1.08%)
Health and human services........................... 18,705,192 17,812,888 — — 18,705,192 17,812,888 5.01%
Economic development................................ 408,289 420,464 — — 408,289 420,464 (2.90%)
Environment and natural resources.............. 490,185 484,718 — — 490,185 484,718 1.13%
Public safety, corrections and regulation...... 2,895,244 2,911,146 — — 2,895,244 2,911,146 (0.55%)
Transportation............................................. 2,673,649 2,607,663 — — 2,673,649 2,607,663 2.53%
Agriculture.................................................... 165,735 191,242 — — 165,735 191,242 (13.34%)
Interest on long-term debt............................ 216,519 216,521 — — 216,519 216,521 0.00%
Unemployment compensation..................... — — 349,069 700,190 349,069 700,190 (50.15%)
N.C. State Lottery........................................ — — 1,450,494 1,341,219 1,450,494 1,341,219 8.15%
EPA Revolving Loan.................................... — — 22,965 27,789 22,965 27,789 (17.36%)
N.C. Turnpike Authority............................. — — 89,004 88,278 89,004 88,278 0.82%
Regulatory programs.................................... — — 90,397 86,253 90,397 86,253 4.80%
Insurance programs...................................... — — 21,632 18,427 21,632 18,427 17.39%
North Carolina State Fair............................. — — 14,975 13,957 14,975 13,957 7.29%
Other business-type activities..................... — — 12,364 12,917 12,364 12,917 (4.28%)
Total expenses............................................ 40,798,341 39,400,161 2,050,900 2,289,030 42,849,241 41,689,191 2.78%
Increase (decrease) in net position
before contributions and transfers............ 2,837,967 2,243,156 2,105,811 1,740,422 4,943,778 3,983,578 24.10%
Contributions to permanent funds............... 4,382 3,861 — — 4,382 3,861 13.49%
Transfers...................................................... 416,483 429,810 (416,483) (429,810) — — 0.00%
Increase (decrease) in net position.......... 3,258,832 2,676,827 1,689,328 1,310,612 4,948,160 3,987,439 24.09%
Net position - beginning - restated............... 39,602,622 36,925,795 1,476,621 166,009 41,079,243 37,091,804 10.75%
Net position - ending.................................... $ 42,861,454 $ 39,602,622 $ 3,165,949 $ 1,476,621 $ 46,027,403 $ 41,079,243 12.05%
32
State of North Carolina June 30, 2015
Governmental Activities. For fiscal year 2015, revenues outpaced expenses and when combined with transfers from the State’s business-type
activities, an increase in net position of $3.26 billion (or 8.23%) resulted for governmental activities. Total revenues increased by
4.79% ($1.99 billion) while total expenses increased more slowly at 3.55% ($1.4 billion). The increase in total revenues is attributable to
major tax changes enacted by the General Assembly, which included a reduction in individual income and corporate income tax rates
(effective January 1, 2014) and a broadening of the sales and use tax base. A significant decrease in tax refunds due to the elimination of
many deductions and tax credits and taxpayers not adjusting their withholding amounts for the 2014 tax year explains the increase in
individual income tax revenues. Operating grants and contributions increased because of more spending in federally supported programs,
such as Medicaid. However, capital grants and contributions decreased due to a reduction in federal funding for transportation.
The following chart reflects the dollar change in the revenues by source of governmental activities between fiscal years 2014 and 2015:
Dollar Change in Governmental Activities Revenues by Source
Between Fiscal Years 2014 and 2015
$(157)
$(1)
$(220)
$1,030
$(45)
$712
$(318)
$891
$102
$(500) $(400) $(300) $(200) $(100) $— $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100
Other revenues
Tobacco settlement
Other taxes
Sales and use tax
Corporate income tax
Individual income tax
Capital grants and contributions
Operating grants and contributions
Charges for services
(dollars in millions)
The following chart reflects the dollar change in the functional expenses of governmental activities between fiscal years 2014 and 2015:
Dollar Change in Governmental Activities Functional Expenses
Between Fiscal Years 2014 and 2015
$—
$(26)
$66
$(16)
$5
$(12)
$892
$(42)
$452
$78
$(200)$(100) $— $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000
Interest on long-term debt
Agriculture
Transportation
Public safety, corrections and regulation
Environment and natural resources
Economic development
Health and human services
Higher education
Primary and secondary education
General government
(dollars in millions)
33
State of North Carolina June 30, 2015
The increase in total expenses of 3.55% is attributable to spending increases in the State’s two largest functional areas, health and human
services and primary and secondary education. The increase in health and human services is due primarily to increased spending for
Medicaid (the State’s largest public assistance program). The growth in primary and secondary education is due to salary increases for
State-funded local public school district employees, including teachers and instructional support, and other personnel. The pay for all
educators was increased to at least $33 thousand annually. Higher education spending decreased during the current period due, in part, to
smaller distributions of higher education bond proceeds in fiscal year 2015 compared to the prior year. Also, escheat funding for grants,
loans, and scholarships for students was lower this year.
Medicaid is a federal entitlement program, which means individuals found eligible for Medicaid have legal rights to receive services and
cannot be denied coverage by the State. In North Carolina, Medicaid is administered by the State and counties and financed with federal
and state funds. Medicaid serves as the State’s safety net program for eligible individuals who lose jobs and health insurance coverage. As
such, it is sensitive to economic volatility. Higher growth rates occur during years of economic distress and when major Medicaid
expansions are enacted. Lower growth rates occur when the Medicaid eligible population is stable or declining.
The following chart depicts the total expenses and total program revenues of the State’s governmental functions. This format identifies the
extent to which each governmental function is self-financing through fees and intergovernmental aid or draws from the general revenues
of the State.
Expenses - Governmental Activities
For the Fiscal Year Ended June 30, 2015
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
$11
$12
$13
$14
$15
$16
$17
$18
$19
$20
General
government
Primary and
secondary
education
Higher education Health and
human services
Economic
development
Environment and
natural
resources
Public safety,
corrections, and
regulation
Transportation Agriculture Interest on long-term
debt
Expenses
Program Revenues (excluding Capital
Grants)
Billions
Business-type Activities. Business-type activities reflect an overall increase in net position of $1.69 billion or 114.4%, primarily because
of the financial results of the Unemployment Compensation Fund. The net position increase of $1.51 billion in the Unemployment
Compensation Fund is explained by the drop in the State’s unemployment rate and the implementation of Session Law 2013-2. The net
position increase of $59.47 million for the N.C. Turnpike Authority is due primarily to transfers in from the Highway Trust Fund. The net
position increase of $97.29 million in the EPA Revolving Loan Fund is due to the recognition of federal capitalization grants. The N.C.
State Lottery Fund has no net position since its net profits are distributed to the State’s governmental activities, as required by statute. A
more detailed discussion of the State’s business-type enterprise activities is provided in the following section (see Enterprise Funds).
34
State of North Carolina June 30, 2015
Governmental
Funds
FINANCIAL ANALYSIS OF THE STATE’S FUNDS
The State uses fund accounting to ensure and demonstrate compliance with finance-related legal
requirements.
The focus of the State’s governmental funds is to provide information on near-term inflows, outflows,
and balances of spendable resources. At June 30, 2015, the State’s governmental funds reported combined
fund balances of $5.84 billion, an increase of 37.28% from the prior fiscal year-end (as restated). Of this
amount, $688.17 million is classified as unassigned fund balance in the General Fund (available for
spending at the State’s discretion). The remainder of fund balance is either nonspendable, restricted,
committed, or assigned to indicate that it is 1) not in spendable form (e.g., inventories), 2) restricted for
particular purposes by external sources, 3) committed for particular purposes by the N.C. General
Assembly, or 4) assigned for particular purposes by the Office of State Budget and Management. The
substantial increase in combined fund balances is explained primarily by unspent debt proceeds reported
in both the Highway Fund and other governmental funds ($559 million) and the fund balance increase in
the General Fund (see below).
The major governmental funds are discussed individually below.
General Fund
The General Fund is the chief operating fund of the State. The fund balance of the General Fund increased
$954.72 million (or 61.44%) to $2.51 billion at June 30, 2015. A significant decrease in individual income
tax refunds, due to tax law changes, is the main contributor to the fund balance increase. The 2013 Session
of the General Assembly enacted the Tax Simplification and Reduction Act (Session Law 2013-360),
which created a flat personal income tax, reduced personal and corporate income tax rates, and increased
sales tax revenues through an expanded base.
Individual income tax revenues increased 6.73% to $11.29 billion. The significant decrease in tax refunds
explains this increase (Note: income tax revenues are net of estimated refunds and uncollectible amounts).
Tax law changes required all employees receiving wages in North Carolina to adjust the amount withheld
by their employer based on a new calculation model for wages earned beginning January 1, 2014. The
reduction in individual income tax refunds is due to a combination of the elimination of many deductions
and tax credits as well as taxpayers not adjusting their withholding amounts for the 2014 tax year to reflect
the altered withholding tables due to the tax reform. The result was more taxpayers owed taxes for the
2014 tax year than in previous tax years. Effective January 1, 2014, the State individual income tax rates
changed from a multi-tiered bracket system with tax rates of 6%, 7%, and 7.75% to a flat rate of 5.8% for
all individual income tax taxpayers in North Carolina. Effective January 1, 2015, the State individual
income tax rate decreased to 5.75%.
Sales and use tax revenues increased 17.48% to $6.86 billion due to an improved economy and tax law
changes that broadened the sales and use tax base. The improvements in the economy over the last year,
as evidenced by the growing number of jobs in the state, have increased the disposable incomes of
consumers. Corporate income tax revenues, which are highly volatile over the business cycle, decreased
4.58% to $1.27 billion. Tax law changes reduced the corporate income tax rate from 6% to 5% for tax
years beginning in 2015.
One of the major budget drivers for the General Fund, historically, has been the Medicaid program.
Medicaid enrollment increased 6% to 1.84 million individuals (or 18.3% of North Carolina’s population).
State appropriation expenditures for Medicaid increased 4.52% to $3.56 billion. Medicaid ended the fiscal
year without a budget shortfall. Prior to the fiscal year 2014-15, Medicaid experienced shortfalls of nearly
$1 billion over a three-year period. N.C. Tracks, the replacement system for the Medicaid Management
Information System, went live on July 1, 2013. N.C. Tracks is the first multi-payer system in the country
and the largest information technology project in North Carolina history. In April 2015, the system was
certified by the Centers for Medicare and Medicaid Services’.
35
State of North Carolina June 30, 2015
General Fund Budget Variances
The original General Fund budget, including state appropriations and appropriations supported by
departmental receipts, serves as a starting point or plan for the Governor to execute the General Fund
budget pursuant to the powers granted by the Constitution and State Budget Act. At the state level in
North Carolina, it is not unusual for the budget to change during the fiscal year in relation to budget
adjustments made to accommodate departmental receipts. The General Fund budget supported by state
appropriation is a subset of the General Fund financial schedule presented in the CAFR as required
supplementary information. The current CAFR schedule reflects all spending required to support the
State’s General Fund activities and the funding to support those activities, including state tax and non-tax
revenues, federal revenues, student tuition, and other fees, licenses, and fines. Under current state budget
management practice, particularly related to departmental federal receipts, primary emphasis is placed on
comparisons of the final authorized budget and actual spending.
At the state level, budgetary cuts related to state appropriations are implemented by decreasing allowable
actual expenditures, as opposed to decreasing the state appropriation through a formal legislative process.
The Governor and state agencies maintain legal authority to spend the dollars originally appropriated to
them; however, in recent years the actual spending has been limited by the collection of tax and non-tax
revenue. In extremely rare cases, the General Assembly has held special sessions to formally amend the
authorized and certified state appropriation budget.
The portion of the original budget comprising departmental receipts is not intended to be the sole
controlling point to manage the State’s General Fund budget. The final budget includes amendments for
departmental receipts collected during the fiscal year as allowed by law. General Fund departmental
receipts are typically authorized for expenditure within the activity that generated the receipt.
Historically, final estimated receipts have varied significantly from the original estimate at the beginning
of the fiscal year. State agencies by law must spend departmental receipts prior to spending tax and nontax
supported appropriations. If departmental receipts are higher than expected, appropriated dollars may go
unspent and be re-appropriated in a subsequent fiscal year.
Variances – Original and Final Budget
In general, the variances between original and final budget are attributable to the timing and length of the
budget preparation process and the budgeting of federal funds for the fiscal year. The original budget for
fiscal year 2014-15 was prepared approximately 18 months prior to the final budget existing on June 30,
2015. The final budget reflects all budget revisions made throughout the fiscal year to adjust for known
facts as well as supplemental adjustments approved in the 2014 Session of the General Assembly.
Consequently, when the original budget is compared to the final budget, it would be expected that
significant variances can occur.
Additional factors leading to variances between the original and final budget in fiscal year 2014-15
include the following:
1) Awarding of new unanticipated federal grants and/or the awarding of unanticipated increased or
decreased amounts in long-standing federally supported programs. This also led to the necessity of
budgeting unanticipated required state match.
2) Statewide encumbrance carry-forward budgeted amounts from fiscal year 2013-14 totaled $282.17
million.
3) Allocation of statewide reserves to agencies and universities for the purposes of retirement and
hospitalization formula adjustments, severance, salary adjustments, contingency and emergency,
information technology related programs, and various other budgeted statewide reserves.
4) Receipt and budgeting of over-realized receipts, prior year earned revenues, and unanticipated
donations and grants.
Variances - Final Budget and Actual Results
Actual total revenue collected (both tax and non-tax) was 2.1% above budgeted revenue amounts in fiscal
year 2014-15. This result occurred due to greater than anticipated individual income and corporate income
collections. As corporate taxable profits accelerated and write-offs on losses from the recession dropped,
corporate income tax collections surged over 20% above forecast expectations. For individual income
taxes, the forecast did not fully anticipate the timing of significant State tax law changes enacted during
36
State of North Carolina June 30, 2015
fiscal year 2013-14, resulting in a shortfall in fiscal year 2013-14 and a surplus in fiscal year 2014-15.
Sales and use tax collections, which comprise nearly 30% of total general fund revenue collections,
finished on target in fiscal year 2014-15.
Departmental federal funds actually received by agencies were less than the final authorized budgeted
federal fund revenues. A variance between the budget and actual federal funds occurs because actual
federal fund receipts are reflective of the actual expenditures. Therefore, if qualifying federal costs are
not incurred by an agency, the actual receipt of federal funds could be significantly less than the budget.
Highway Fund
The Highway Fund dates back to 1921, when the General Assembly first imposed the gasoline tax. It
accounts for most of the activities of the North Carolina Department of Transportation (NCDOT),
including the maintenance and construction of the State’s primary and secondary road systems, the
Division of Motor Vehicles, the State Highway Patrol, transit, rail and ferry system. The primary revenue
sources of the Highway Fund are federal funds, three-fourths of gasoline taxes, vehicle registration fees,
and driver’s license fees.
The fund balance of the Highway Fund increased from $221.57 million at June 30, 2014 (as restated) to
$367.09 million at June 30, 2015, an increase of 65.68%. The fund balance increase is attributable, in
part, to the issuance of $264.93 million in grant anticipation revenue vehicle bonds (GARVEE’s) in May
2015. This innovative financing tool was used to accelerate the funding of transportation improvement
projects across the State by leveraging future federal transportation revenues. At June 30, 2015, $193.89
million of the GARVEE proceeds were unspent.
Total revenues decreased 4.42% to $3.4 billion, mostly due to a decrease in federal funds. Total
expenditures were $3.29 billion, a decrease of 5.67%. The Federal Highway and Transportation Funding
Act of 2015 allocated federal apportionments in smaller increments spread out throughout the year, some
of which were not received until the fiscal year 2016. As a result, transportation expenditures and federal
revenues decreased from the previous year.
Population growth is placing an increasing demand on the State’s transportation system. North Carolina’s
population grew from 8.53 million in 2004 to 9.94 million in 2014, an increase of 16.56%. According to
the 2014 Maintenance and Operations Performance Analysis Report prepared by the N.C. Division of
Highways, over a 10-year period (2004 to 2014), paved lane miles grew by 6.6% while bridge deck area
grew by approximately 24%. During this same 10-year period, vehicle miles traveled increased by 11%.
While the recent recession slowed the growth in vehicle miles traveled, current rates indicate a return to
pre-recession levels. This increase places a heavier burden on the existing infrastructure and accentuates
the need for additional capacity, safety, and maintenance funding to address the deterioration in service
created by the increase in traffic. Furthermore, many of the State’s highways were built as farm-to-market
roads and were not designed to handle the heavy traffic volumes of today, and other highways such as
the interstate highway system, which is approaching its 60th anniversary, are nearing the end of their
functional life.
Transportation is fundamental in continuing North Carolina’s prosperity and quality of life as the state’s
population continues to grow. To address the growing demand on the transportation system, increased
cost of supplies, and declining funding, NCDOT continues to seek innovative solutions to meet the
growing stress on the transportation system. In response to declining motor fuels tax and the decreasing
purchasing power of the Highway Fund, Session Law 2009-108 repealed the cap on the motor fuels tax
and set the variable portion of the tax at 12.4 cents per gallon or 7% of the average wholesale price
whichever is greater, thus setting a floor of 29.9 cents per gallon. This remained in place through June
30, 2011. Subsequent legislation reinstated and continued the cap on the motor fuels tax at a rate of 37.5
cents per gallon until April 30, 2015. Session Law 2015-2 revised the motor fuel tax formula. It sets the
tax rate at 36 cents per gallon until December 31, 2015, 35 cents until July 1, 2016 and 34 cents until
December 31, 2017. Beginning January 2018, the motor fuel tax computation will include factors for
population change and the consumer price index.
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State of North Carolina June 30, 2015
Enterprise
Funds
Effective beginning in fiscal year 2016, Session Law 2015-241 revised the motor fuels tax distribution
formula, directing 71% to the Highway Fund and 29% to the Highway Trust Fund. However, the law also
increased license, registration and other fees attributable to the Highway Fund. The law also eliminates a
transfer to the General Fund for the State Highway Patrol thereby increasing funding for maintenance,
system preservation and the bridge program.
Highway Trust Fund
Legislation creating the Highway Trust Fund was passed by the General Assembly in 1989. It was
established to provide a dedicated funding mechanism to meet specific highway construction needs in
North Carolina. Additionally, the Highway Trust Fund provides supplemental allocations for secondary
road construction and pays the debt service on general obligation bonds issued for highway purposes.
The principal revenue sources of the Highway Trust Fund are highway use taxes, one-fourth of gasoline
taxes, and various title and registration fees. The enabling legislation also specifies that a designated
amount will be transferred each year to the General Fund. The legislation was amended in 2008 to also
require annual transfers to the N.C. Turnpike Authority to pay debt service or financing expenses for
specified toll road construction projects (see Note 10(B) to the financial statements). The budget
legislation for fiscal years 2015 and 2014 reduced the designated transfer amount to the General Fund to
$0. This did not change for fiscal years 2016 and 2017 under current legislation.
The fund balance of the Highway Trust Fund increased from $871.43 million at June 30, 2014 (as
restated) to $1.13 billion at June 30, 2015, an increase of 29.45%. The fund balance increase was primarily
due to an increase in the highway use tax. Gasoline consumption also rose slightly from the previous year
contributing to the overall increase. Total revenues increased 5.56% to $1.25 billion, primarily due to
growth in the highway use tax. Continued increases in vehicle sales, especially in the new vehicle
segment, led to the increase. Total transportation expenditures were $835.52 million, an increase of
12.21%. The full implementation of the Strategic Prioritization Funding plan accounted for this increase.
Since passage of the Highway Trust Fund in 1989, the NCDOT has paved over 13,000 miles of unpaved
secondary roads, leaving only 4,357 miles of secondary roads to be paved. In view of the fact that the
paved secondary road system has not kept up with the demands of increased urbanization and traffic, the
2006 Session of the General Assembly approved changes in the General Statutes that govern the use of
secondary road construction funds. Beginning with fiscal year 2010-11, secondary road allocations to the
counties are based on the total number of secondary road miles in that county in proportion to the total
state maintained secondary road mileage. Projects slated after July 1, 2015 will be prioritized on a
statewide basis instead of a county-wide basis.
Session Law 2013-183 amends the Highway Trust Fund allocation of resources creating the Strategic
Prioritization Funding Plan. Fully implemented as of July 1, 2015, it eliminates individually legislated
projects and implements a new way for NCDOT to fund and prioritize necessary infrastructure
improvements while utilizing existing revenue sources more efficiently. Effective beginning fiscal year
2016, Session Law 2015-241 revised the motor fuels tax distribution formula, directing 71% to the
Highway Fund and 29% to the Highway Trust Fund. The law also increased the minimum highway use
tax and certain motor vehicle fees in order to increase funding to the Strategic Prioritization Program.
The State’s enterprise funds or business-type activities provide the same type of information found in the
government-wide financial statements, but in more detail. The major enterprise funds are discussed
individually below.
Unemployment Compensation Fund
The Unemployment Compensation Fund (Trust Fund) reported net position of positive $1.14 billion at
June 30, 2015 compared to negative $370.52 million at June 30, 2014. The improvement in net position
is explained by 1) the drop in the State’s unemployment rate from 6.4% in June 2014 to 5.8% in June
2015, 2) an additional increase in the Federal Unemployment Tax Act (FUTA) tax, and 3) the
implementation of Session Law 2013-2 in the prior fiscal year. The main impact of this law in the current
fiscal year was the decrease to expenses due to the reduction in the maximum weekly benefit amount and
the maximum duration of unemployment benefits. The Trust Fund’s operating margin (operating
38
State of North Carolina June 30, 2015
revenues less operating expenses) increased 19.21% to $1.21 billion this year. Employer unemployment
contributions decreased 4.83% to $1.54 billion in 2015 due to a one-time 1% contribution rate paid by
employers (per Session Law 2013-2) that was in effect for 2014 but not 2015. Unemployment benefit
expenses, both State and Federal, decreased 46.42% from $632.91 million in 2014 to $339.14 million in
fiscal year 2015, due to a reduction in the number of new claimants and the effects of Session Law 2013-
2 (described above).
In fiscal year 2014-15, nonoperating revenues increased 30.43% to $305.75 million, due to FUTA tax
received in excess of outstanding debt. The excess FUTA tax does not need to be paid back to the federal
government and can only be used to pay benefits.
Since February 2009, the State has borrowed from the U.S. Treasury to ensure the uninterrupted payment
of State unemployment benefits. The State paid off the federal unemployment debt on April 30, 2015. At
June 30, 2014, the balance of this debt was $980.99 million. For the tax year 2014, the FUTA tax increased
by an additional 0.3% for a total increase of 1.2% because the State had an outstanding loan as of
November 10, 2014. The funds generated from this federal tax increase go directly towards paying down
the loan (i.e., Federal unemployment account advances). The additional federal taxes paid by the State’s
employers this fiscal year, which were used to reduce the loan balance, was $253.45 million (classified
as gain on extinguishment of debt). A 1.5% FUTA tax increase will not be in effect for the next calendar
year since the debt was paid off prior to November 10, 2015.
A 20% surcharge on State unemployment contributions, which has been in effect since January 1, 2005
as required by statute, remained in effect during the current fiscal year. The surcharge is deposited into
the Unemployment Insurance Reserve Fund and one of the allowable uses is to pay the interest on the
borrowing. The surcharge is still in effect because the balance in the Trust Fund has not reached the
trigger “off” level. The surcharge will end in January 2016.
N.C. State Lottery Fund
The N.C. Education Lottery (NCEL) first began selling game tickets in 2006. As required by the enabling
legislation, net revenues of the NCEL are transferred four times a year to the General Fund. The NCEL
transferred $526.43 million to the General Fund in 2015 to support educational programs for the State.
The amount transferred in 2014 was $503.14 million. At year end, the net position of the NCEL was zero.
The NCEL has no changes in the net position from year to year.
For fiscal year 2014-15, net ticket sales increased 7.23% from the previous fiscal year to $1.97 billion.
Significant financial highlights include the following: awarded $1 million or more to an NCEL player for
the 227th time; and released 50 new instant scratch-off games into the marketplace generating gross instant
ticket sales of $1.29 billion.
The NCEL’s 2015-16 budget provides for a projected $528.9 million transfer to the General Fund,
representing a 1.71% increase from the previous year’s budget. As established in legislation, lottery funds
are to be distributed for educational purposes as follows:
1. 58.6% for noninstructional support personnel.
2. 14.8% to support reduction of class size in early grades and to support pre-kindergarten programs for
at-risk four-year-olds who would otherwise not be served in high quality settings.
3. 18.9% for public school construction.
4. 7.8% to the State Education Assistance Authority to fund college and university scholarships.
39
State of North Carolina June 30, 2015
N.C. Turnpike Authority
The North Carolina Turnpike Authority (NCTA) was created in 2002 by the General Assembly in
response to concerns about rapid growth, heavy congestion and dwindling resources. It is authorized to
study, plan, develop, construct, operate and maintain up to nine turnpike projects.
Major accomplishments for the NCTA include the following:
 The Triangle Expressway System, the State’s first modern toll road, is approximately 18.8 miles of
new highway construction. The project was constructed and opened in three phases. The third and
final phase opened to toll traffic on January 2, 2013. The Triangle Expressway project was delivered
on schedule and under budget. Total operating revenues increased 24.21% to $30.71 million
primarily due to the increase in toll revenues. A possible southwest extension to the Triangle
Expressway is in the study phase, and would extend the Expressway to I-40 in southern Wake
County.
 The NCTA has completed the financing for the Monroe Connector System, a 19.7-mile toll road in
Mecklenburg and Union counties. However, construction has been delayed due to litigation
challenging the project’s environmental documentation. Construction has resumed and will continue
despite the notice of appeal.
Net position for NCTA increased 21.51% to $335.96 million in 2015. Operating loss (before capital
contributions and transfers) improved 66.94% due to increases in toll revenue but still remains negative
at $3.1 million. However, net position continues to increase due to continued transfers from the Highway
Trust Fund for gap funding of debt service and funds for the Federal Highway Administration (FHWA)
match; and capital grants (funds received from the FHWA and the Highway Trust Fund for their
participation in the initial construction of toll highways and in preliminary studies to determine the
feasibility of a toll facility).
Funding for administrative expenses is advanced as needed from the Highway Trust Fund to be repaid
from NCTA revenue collections. Interest began to accrue on the advance on January 1, 2014 (one year
after the NCTA began collecting tolls on the completed turnpike project).
The high cost of building, operating and maintaining a major highway facility is typically more than the
revenue a new road can generate through tolls. The gap between what tolling can pay for and the cost of
the road requires additional support from the State, known as gap funding. Annual transfers from the
Highway Trust Fund to the NCTA are used to pay debt service and fund required reserves on bonds issued
to finance turnpike projects. For fiscal year 2015, the N.C. General Assembly appropriated $49 million
for the Triangle Expressway and Monroe Connector projects.
EPA Revolving Loan Fund
The Environmental Protection Agency (EPA) Revolving Loan Fund (Loan Fund) is comprised of the
Clean Water State Revolving Fund and the Drinking Water State Revolving Fund established by General
Statute 159G-22 and receives federal and state funds. This Loan Fund was established to provide loans
and grants as allowed under federal laws for wastewater projects and public water systems to meet the
water infrastructure needs of the State.
The net position of the Loan Fund increased 6.94% to $1.5 billion in 2015. This increase in net position
is due to the Loan Fund continuing to focus on streamlining its processes (requiring municipalities to
follow specified timelines that resulted in more infrastructure projects being completed during the year)
and prioritizing the spending of funds from the U.S. EPA (federal) capitalization grant for these projects
(as opposed to funds from other sources). The amount of expenses paid (loaned) out during the year for
existing infrastructure projects exceeded the total amount of principal repaid on the existing loans which
resulted in an increase to notes receivable. Operating income was $16.47 million (operating revenues less
operating expenses), and net non-operating revenues were $67.68 million. Net non-operating revenues
consisted primarily of noncapital grants (federal capitalization grants). Noncapital grants decreased
3.87% to $85.48 million. Noncapital grants decreased primarily because the U.S. EPA requested that
states focus on the first-in first-out methodology of loaning and drawing down federal funds for new
infrastructure projects.
40
State of North Carolina June 30, 2015
Capital
Assets
CAPITAL ASSET AND DEBT ADMINISTRATION
As of June 30, 2015, the State’s investment in capital assets was $47.09 billion, an increase of 3.27%
from the previous fiscal year-end (see table below).
Capital Assets as of June 30
(net of depreciation, dollars in thousands)
2014 2014 2014
2015 (as restated) 2015 (as restated) 2015 (as restated)
Land and permanent easements............ $ 16,634,469 $ 16,221,268 $ 185,894 $ 160,571 $ 16,820,363 $ 16,381,839
Buildings............................................... 2,757,591 2,792,625 63,288 54,232 2,820,879 2,846,857
Machinery and equipment .................... 604,889 589,323 6,833 8,160 611,722 597,483
Infrast ructure:
State highway system....................... 22,850,001 21,897,786 — — 22,850,001 21,897,786
NC toll road system.......................... — — 762,446 778,576 762,446 778,576
Other infrast ructure.......................... 160,093 163,062 4,322 4,645 164,415 167,707
Computer software............................... 307,400 288,109 987 12 308,387 288,121
Art , literature, and other art ifacts......... 116,223 104,296 390 209 116,613 104,505
Const ruct ion in progress....................... 2,049,311 2,040,771 263,281 206,910 2,312,592 2,247,681
Computer software in development ...... 324,390 290,801 — — 324,390 290,801
Total............................................ $ 45,804,367 $ 44,388,041 $ 1,287,441 $ 1,213,315 $ 47,091,808 $ 45,601,356
Total percent change between
fiscal years 2014 and 2015 3.19 % 6.11 % 3.27 %
Governmental
Activi ties
Business-type
Activi ties Total
The largest component of capital assets is the state highway system. North Carolina has a 79,584 mile
highway system, making it the second largest state-maintained highway system in the nation. The major
capital asset activity during the current fiscal year included the following:
 The N.C. Department of Transportation reported year-end construction in progress of $1.58 billion
(including land improvements) for state highway projects. Additionally, the N.C. Turnpike Authority
(business-type activity) reported year-end construction in progress of $263 million for the Monroe
Connector System, a toll project in eastern Mecklenburg County.
 The Department of Health and Human Services (DHHS) is constructing new psychiatric hospitals to
replace its aging state-operated psychiatric hospitals. It began construction of a new Cherry Hospital
in 2010 and a new Broughton Hospital in 2012. At year-end, construction in progress for Cherry
Hospital and Broughton Hospital totaled $226 million. The new hospitals are being financed by
special indebtedness bonds.
 DHHS is also replacing major legacy IT systems. NC Tracks, the new multi-payer Medicaid
Management Information System, became operational on July 1, 2013 (total development cost of $237
million). This system facilitates provider enrollment, consolidates claims processing activities, and
supports healthcare administration. NC FAST, the new system for managing and administering social
services benefits, will improve the way DHHS and the 100 county departments of social services
conduct business. At year-end, computer software in development for NC FAST totaled $301 million.
As further detailed in Note 21(E) to the financial statements, the State has commitments of $3.997 billion
for the construction of highway infrastructure ($3.97 billion for governmental activities and $27 million
for business-type activities), which are expected to be financed by gasoline tax collections, motor vehicle
fees, toll collections, federal funds, and debt proceeds. Other commitments of $57 million for the
construction of new mental health facilities are expected to be financed by special indebtedness bonds.
More detailed information about the State’s capital assets is presented in Note 5 to the financial
statements.
41
State of North Carolina June 30, 2015
Long-term
Debt
At year-end, the State had total long-term debt outstanding (bonds, special indebtedness, and notes
payable) of $7.91 billion, a decrease of 1.21% from the previous fiscal year-end (see table below).
Outstanding Debt as of June 30
Bonds, Special Indebtedness, and Notes Payable
(dollars in thousands)
2014 2014 2014
2015 (as restated) 2015 (as restated) 2015 (as restated)
General obligat ion bonds....................... $ 3,469,220 $ 3,607,100 $ — $ — $ 3,469,220 $ 3,607,100
Special Indebtedness:
Lease-purchase revenue bonds.......... 2,000 4,125 — — 2,000 4,125
Cert ificates of part icipat ion............. 151,745 247,615 — — 151,745 247,615
Limited obligat ion bonds.................. 2,095,550 2,132,085 — — 2,095,550 2,132,085
GARVEE bonds.................................... 598,165 395,275 145,535 145,535 743,700 540,810
Revenue bonds...................................... — — 1,019,588 1,039,308 1,019,588 1,039,308
Notes payable....................................... 34,095 39,738 390,818 392,592 424,913 432,330
Total ............................................... $ 6,350,775 $ 6,425,938 $ 1,555,941 $ 1,577,435 $ 7,906,716 $ 8,003,373
Total percent change between
fiscal years 2014 and 2015
Total
(1.21)%
Business-type
Activi ties
(1.17)%
Governmental
Activi ties
(1.36)%
During the 2014-15 fiscal year, the State issued $231.36 million in general obligation bonds and $264.93
million in grant anticipation revenue vehicle (GARVEE) bonds for its governmental activities. The
general obligation bonds were issued pursuant to the Two-Thirds Bonds Act of 2014 (see next page) and
will provide funds for the acquisition, construction, and various capital improvements for the State
(governmental activities) and the University of North Carolina System (component unit). The proceeds
of the GARVEE bonds (authorized by Session Law 2005-403) will be used to accelerate funding of
various transportation projects identified in the current State Transportation Improvement Plan.
Additionally, the State refinanced $309.2 million of its existing certificates of participation and limited
obligation bonds reported in governmental activities to take advantage of lower interest rates. The
refinancing is expected to reduce future debt service payments by approximately $21 million.
The State issues two types of tax-supported debt: general obligation (GO) bonds and various types of
“special indebtedness” (i.e., debt not subject to a vote of the people). GO bonds are secured by the full
faith, credit, and taxing power of the State and require approval by a majority of voters. The payments on
special indebtedness are subject to appropriation by the General Assembly and may also be secured by a
lien on facilities or equipment. The General Statutes (Chapter 142, Article 9) prohibit the issuance of
special indebtedness except for projects specifically authorized by the General Assembly. There are
different forms of special indebtedness, also known as appropriation-supported debt. One form,
“financing contract indebtedness” includes lease-purchase revenue bonds and certificates of participation.
The other form is limited obligation bonds, which may be issued by the State directly rather than through
a conduit issuer. The use of alternative financing methods provides financing flexibility to the State and
permits the State to take advantage of changing financial and economic environments. The GARVEE
bonds are a revenue bond-type debt instrument where the debt service is to be paid solely from federal
transportation revenues.
The State’s total long-term debt (bonds, special indebtedness, and notes payable) reported in
governmental activities has increased significantly, rising from $3.48 billion in 2002 to $6.35 billion in
2015, in part due to large issuances of non-GO debt (special indebtedness) for higher education capital
projects. Prior to 2003, the State only issued general obligation debt. The N.C. Turnpike Authority
(Authority), a business-type activity, had its first debt issuance in 2010. The Authority’s long-term debt
has increased from $691.56 million in 2010 to $1.56 billion in 2015.
42
State of North Carolina June 30, 2015
The following is a summary of significant debt authorizations.
Connect NC Bond Act of 2015
The 2015-16 Session of the General Assembly authorized, subject to a vote of the qualified voters of the
State, the issuance of $2 billion dollars of general obligation bonds of the State to be secured by a pledge
of the faith and credit and taxing power of the State. The proceeds of the bonds will be used to fund the
construction and furnishing of new facilities and the renovation and rehabilitation of existing facilities
for the University of North Carolina System ($980 million), the North Carolina Community Colleges
($350 million), water and sewer loans systems ($309.5 million), the State’s National Guard ($70 million),
the Department of Agriculture and Consumer Services ($94 million), State parks and attractions ($100
million), and other purposes ($96.5 million). The question of the issuance of the bonds will be submitted
to the voters at the time of the 2016 presidential primary on March 15, 2016.
Two-Thirds Bonds Act of 2014
The 2013-14 Session of the General Assembly authorized the issuance of up to $306.9 million of general
obligation bonds without requiring voter approval pursuant to authority in the State’s constitution that
permits the issuance of such bonds to the extent of two-thirds of the amount of general obligation debt
that had been retired during the previous biennium. The proceeds of the bonds are to be used to fund
projects that had previously been authorized to use the proceeds of special indebtedness and various other
state projects. The State issued $231.36 million of two-thirds bonds in fiscal year 2014-15, which was
less than authorized. This was due both to previously realized savings on projects that have been
completed and the use of bond premium in prior years to provide project financing.
Special Indebtedness
The 2009-10 Session of the General Assembly reduced special indebtedness authorizations for various
projects by over $115 million to generate additional debt capacity and increased authorizations for
guaranteed energy savings contracts by $400 million. The 2008-09 Session of the General Assembly
authorized the issuance of $734.03 million of special indebtedness as follows: $512.22 million for higher
education projects, $109.09 million for correctional facilities, $50 million for acquiring state park lands
and conservation areas, and $62.72 million for other state projects. The 2007-08 Session of the General
Assembly authorized the issuance of special indebtedness as follows: $481.14 million for higher
education projects and $188.01 million for other purposes. The 2006-07 Session of the General Assembly
authorized the issuance of $672.1 million of special indebtedness as follows: $429.3 for psychiatric
hospitals and a public health laboratory for the Department of Health and Human Services, $132.2 million
for medical and mental health centers for the Department of Correction, and $110.6 million for other state
and university projects.
Repair and Renovation Authorization
The 2002-03 Session of the General Assembly authorized the issuance of $300 million of special
indebtedness to finance the repair and renovation of state facilities and related infrastructure that are
supported by the State’s General Fund. Of the $300 million, approximately $157 million was allocated
to the University of North Carolina (UNC) System. Each of the 16 constituent institutions of the UNC
System received a portion of the proceeds for repairs and renovations. The remaining $143 million of the
proceeds was used to make repairs and renovations to various state facilities. The State has issued all of
the authorized repair and renovation debt.
Higher Education Authorization
The 1999-00 Session of the General Assembly authorized the issuance of $3.1 billion of higher education
improvement bonds, which were subsequently approved by the voters of the State. The $3.1 billion bond
authorization represents the largest debt authorization in the State’s history. The proceeds of these general
obligation bonds were used solely to construct new buildings and to renovate and modernize existing
buildings on the State's 58 community college and 16 University of North Carolina campuses. These
improvements were needed to meet enrollment demands and to ensure that the State’s college and
university buildings meet modern code requirements and are equipped to prepare graduates for 21st
century jobs. The bond legislation passed by the General Assembly specifies the amount of bond funding
that flows to each community college and university campus. The State has issued all of the authorized
higher education bonds.
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State of North Carolina June 30, 2015
Clean Water and Natural Gas Authorization
The 1997-98 Session of the General Assembly authorized the issuance of $1 billion of clean water and
natural gas general obligation bonds, which were subsequently approved by the voters of the State. The
proceeds of these bonds were used to provide grants and loans to local governments for clean water
projects ($800 million) and to provide grants and loans for construction of natural gas facilities to
facilitate the expansion of natural gas service to unserved areas of the State ($200 million). The State has
issued all of the authorized clean water and natural gas bonds.
Highway Bond Authorization
The 1995-96 Session of the General Assembly authorized the issuance of $950 million of highway general
obligation bonds, which were subsequently approved by the voters of the State. The bond proceeds were
allocated to pay capital costs for urban loops ($500 million), highways in the Intrastate System ($300
million), and for paving unpaved roads of the secondary highway system ($150 million). The State has
issued all of the authorized highway bonds.
Credit Ratings
Credit ratings are the rating agencies’ assessment of a governmental entity’s ability and willingness to
repay debt on a timely basis. Credit ratings are an important factor in the public credit markets and can
influence interest rates a borrower must pay.
The State’s general obligation bond credit ratings are as follows:
State of North Carolina
General Obligation Bond Credit Ratings
Rating Agency Rating Outlook
Fitch Ratings AAA Stable
Moody’s Investors Service Aaa Stable
Standard & Poor’s Rating Services AAA Stable
These ratings are the highest attainable from all three rating agencies. During the 2014-15 fiscal year, the
State issued general obligation bonds, GARVEE bonds, and limited obligation refunding bonds. In
connection with the general obligation bonds, Standard & Poor’s, Moody’s Investors Service, and Fitch
Ratings, the top three rating agencies, all affirmed the triple-A bond rating for the State. A triple-A credit
rating means that North Carolina has followed well-defined financial management policies and has
demonstrated strong debt management practices. The ratings assigned on the limited obligation refunding
bonds were one level below triple-A. The rating agencies recognized the State’s historically conservative
budgeting, financial management, and debt issuance practices. North Carolina remains one of only ten
states with a triple-A rating from all three rating agencies.
Special indebtedness is not subject to a vote of the people and its repayment is based on the State’s annual
debt service appropriation. For these reasons, special indebtedness is rated lower than the State’s general
obligation bonds and typically carries a higher interest rate.
Limitations on Debt
The Constitution of North Carolina (Article 5, Section 3) imposes limitations upon the increase of certain
state debt. It restricts the General Assembly from contracting debts secured by a pledge of the faith and
credit of the State, unless approved by a majority of the qualified voters of the State, except for the
following purposes:
1. To fund or refund a valid existing debt;
2. To supply an unforeseen deficiency in the revenue;
3. To borrow in anticipation of the collection of taxes due and payable within the current fiscal year to
an amount not exceeding 50 percent of such taxes;
4.